First Horizon National Corporation Aktie

Hello, everyone. Thank you for joining us, and welcome to the First Horizon Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Tyler Craft, Head of Investor Relations. Tyler, please go ahead.

Thank you, Erica. Good morning. Welcome to our third 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 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 at the end 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 2 and 31 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.

And with that, I'll hand it over to Bryan.

Thank you, Tyler. Good morning, everyone. Thank you for joining us. Our adjusted results this quarter are highlighted by EPS of $0.53, which is a 4% increase year-over-year. Over the last year, we've grown our commercial loan portfolio nearly $2 billion, in line with our strategy of growing the balance sheet to generate sustainable returns and drive the most value for our clients. This quarter, we initiated the sale of approximately $4.5 billion of targeted residential mortgage loans as part of our broader realignment of the mortgage business. We entered into an agreement in October and expect to settle the transaction early in the fourth quarter. This transaction, along with the business line restructuring is aligned with the strategy we have discussed consistently throughout the past year of prioritizing full client relationships, enhancing the profitability of our balance sheet and driving improved earnings and returns through the cycle.

This repositioning offers several important strategic advantages. It will serve our goal to utilize balance sheet capacity to profitably serve our clients, and it will immediately enhance our goal of delivering top-tier financial returns. We continue to see steady C&I commercial and commercial real estate loan demand across our geographic footprint from both current and new customers. As outlined in our slides, the transaction will reduce our loan-to-deposit ratio to roughly 88% while maintaining strong capital ratios in line with our stated targets and allowing us to maintain our current share repurchase program. The financial impact will produce an approximately 4% EPS accretion in 2027 without considering the upside impact of deploying proceeds into incremental lending. As noted, we have conviction that this liquidity will support further growth in new core client relationships lending, which will meaningfully enhance our returns going forward.

I'll turn the call over to Hope to walk through the results in more detail before I provide some closing thoughts. Hope?

Thank you, Bryan. Good morning, everyone, and thank you for joining us today. Starting on Slide 5. We provide key highlights of our performance this quarter. In the quarter, adjusted EPS declined to $0.53 on lower fee income and slightly higher provision expense in the quarter. Our adjusted ROTCE decreased to 14.4% in the quarter. This is primarily due to the temporary impacts of the timing of capital use in the quarter, which resulted in an elevated average TCE ahead of deployment as part of the mortgage loan reclassification at quarter end. We continue seeing momentum with our strategic focus on relationship banking with client deposits up more than $1 billion this quarter and NIM remaining in line with our expectations at 3.48%.

On Slide 6, we cover notable items in the quarter, which includes the impact of reclassifying the loans associated with our mortgage portfolio sale, which I will discuss more in just a moment. Additionally, we recognized costs associated with reorganizing parts of our business, which includes reductions in our mortgage line of business to align mortgage production more closely with core clients.

On Slide 7, we cover the expected mortgage portfolio sale in more detail. This transaction further ensures our balance sheet is aligned with our strategic focus on delivering relationship-oriented banking and focusing on safety and soundness, profitability and growth. The loans in this transaction have minimal deposits of approximately $200 million and are concentrated in the lowest yielding portion of our mortgage portfolio with an overall weighted average coupon rate of 3.85%.

This transaction is expected to settle early in the fourth quarter and will result in selling approximately $4.5 billion in lower-yielding mortgage loans with limited deposits and relationship balances at an approximate 10% discount all in. Excluding further upside of yields from incremental lending, we expect the transaction to be accretive going forward with 2027 earnings per share benefit of around 4% and improved ROTCE of approximately 150 basis points. Share buybacks will resume in Q4, in line with our CET1 target ratios for the year. This transaction puts our liquidity into an improved position as our loan-to-deposit ratio moves to approximately 88%. It provides immediate improvement to NIM and a future upside as we redeploy to higher yielding loans while continuing to focus on client relationship growth with deposits and fees, deployment into incremental lending in the coming quarters and years will further improve these results.

On Slide 8, we walk through our net interest income and margin performance in the third quarter. Our margin compressed by 1 basis point remaining settled in the high 340s. This reflects the rate of environment evolving into a flat to up expectation. We grew NII by $7 million this quarter, reflecting higher loan yields and includes customer deposit growth replacing broker deposits over the course of the quarter. We believe that the flexibility created by our mortgage portfolio transaction this quarter supports continued margin strength into next year and through the cycle and we expect NIM to improve into the 350s.

On Slide 9, we cover details around our deposit performance in the quarter. Period-end balances decreased by $0.4 billion compared to prior quarter, driven primarily by a decrease in broker CDs as we grew new client deposits approximately $1.5 billion. The average rate paid on interest-bearing deposits increased to 2.45%, which is a 12 basis point increase from the prior quarter. This reflects higher average broker deposits and higher customer deposit costs in the third quarter, which includes impacts from the resetting index client deposits.

Our exit rate for the quarter on a spot and a September average basis is low single-digit basis points above the average for the quarter, and we do expect that the environment for deposits will remain competitive. As we enter into a rate increase cycle, we will focus on betas through the cycle targeting approximately 60%. As always, we remain focused on growing our core deposit base and prioritizing relationship growth as a way to sustainably and profitably grow our balance sheet.

On Slide 10, we cover our quarterly loan growth. Period-end loans decreased $5.5 billion from the prior quarter driven primarily by the reclassification of mortgage loans for the $4.5 billion mortgage portfolio sale. Loans to mortgage companies decreased $891 million in the quarter which steadily decreased in the quarters as rates rose. C&I, excluding loans to mortgage companies decreased $96 million and commercial real estate grew $97 million.

Total line utilization ended the third quarter essentially unchanged from Q2 at 44%. This dipped in July and August before rising again in September to near prior quarter levels. Commercial lending remained competitive through the quarter. Spreads on new lending are typically in the mid-100s to mid-200 basis points in the current environment.

Turning to Slide 11. We detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation and is down $8 million year-over-year. We saw a 6% quarter-over-quarter increase in fixed income revenues due to an increase in average daily revenue to $629,000. Higher ADRs were driven primarily by favorable restructuring activity during the quarter.

On Slide 12, we cover adjusted expenses that excluding deferred compensation, increased $8 million from prior quarter. Other noninterest expense increased by $6 million, driven by the timing of new account promotions and occupancy and equipment increased due to internal technology projects and AI investments.

Turning to credit on Slide 13. NPLs remained flat at 81 basis points on a $49 million reduction in nonaccrual balances driven by strong resolutions during the quarter. Net charge-offs increased by $3 million to $36 million, bringing our net charge-off ratio to 22 basis points. Excluding the mortgage restructuring impact, our provision for credit losses was $20 million in the quarter.

Our ACL to loans ratio increased by 1 basis point to 1.25, this primarily reflects mix shift associated with the reclassification of mortgage loans associated with our mortgage portfolio transaction. On Slide 14, we ended the quarter with CET1 of 10.3%, which is down slightly from the prior quarter and reflects the impact of notable items, including the mortgage transaction we discussed.

Our tangible book value per share ended the quarter at $13.84 and is down 5% quarter-over-quarter, also reflecting the impact of the mortgage portfolio transaction. Our tangible common equity to total assets ratio remains strong at 7.93%.

Now I'll wrap up with Slide 15 and 16. We shared some refinements to our 2026 outlook that include the impacts of the expected mortgage transaction as well as the revenue impact from the current rate environment. We continue making progress towards the $100 million plus PPNR opportunity discussed over the last 18 months and believe our balance sheet restructuring will provide further catalysts for return growth in 2027.

And with that, I'll give it back to Bryan.

Thank you, Hope. The results in the third quarter position First Horizon for continued success, meaningful upside opportunities and deepening strategic alignment. Over the past year, we have shared with you how our strategic framework provides clarity for our associates on the results we expect, understanding of the ways we earn our right to win precision on the types of clients that value our approach, discipline on how we go to market and urgency on the opportunities we have to further enable our strategy.

Our third quarter results which include an important business restructuring, a strategic portfolio transaction and consistent banker engagement with our clients to deliver deeper relationships and drive profitability enable us to deliver enhanced profitability going forward. Thank you to our associates who continue to work hard at delivering these objectives. I reiterate my gratitude to our clients and shareholders who continue to be central to the First Horizon story.

Erica, with that, we can open it up for questions.

[Operator Instructions] Your first question comes from the line of Jon Arfstrom with RBC Capital Markets.

Just a question on the realignment, Bryan, not being critical, but why now? And how did you determine the size of the sale, the $4.5 billion? And anything more left to do or is this it?

Yes. So the one now is it -- one became clear that we're in a cycle of rising interest rates. We sized the portfolio based on trying to extract out or sell what was essentially nonrelationship portfolio assets. And the intent there was mainly to create capacity on our balance sheet to fund continued growth and investing in longer deeper relationship opportunities that we see in the marketplace. And we believe that we have the asset generation capability to put that to use.

So we looked at the portfolio, we tried to exclude anything that was related to private client or wealth, we tried to -- it basically extract a portfolio that was very minimal relationship outside of a loan transaction. And as Hope pointed out, when you do that, you come up with about $4.5 billion of loans, about $200 million of deposit base and a low yielding portfolio.

So the timing was it was a low-yielding set of assets, nonrelationship, we thought we could use the capacity for other and deeper relationships. And then the tangential benefit is it gives us much greater flexibility in terms of how we think about competing in the deposit markets and the use of wholesale deposits on a go-forward basis. So we think it has very positive profitability characteristics. In terms of the work left to be done at this point.

Basically, we should settle the transaction in the next few days to a week. We have to deliver some loan files, and we have a signed agreement. So the transaction is essentially done at this point.

Yes. Okay. Good. And then maybe for you, Hope, can you frame the assumptions around the 4% 2027 EPS accretion? I think you both mentioned some upside as you redeploy the proceeds. But what are you assuming right now in terms of the drivers of that 4% lift?

The 4% is really the immediate lift, which is a portion of it going to pay down wholesale funding and the rest going into our securities rate at floating rate securities as we continue to, as Bryan mentioned, deployed us into loan. So that 4% is really as we get the cash in, in the next week or so, immediately putting that to work between paying down our wholesale funding and putting it in our securities portfolio in short-term floating rate.

And John, I'll add why you're dropping off, I'll add that you should start to see the benefit, 2/3 of it or so beginning in the fourth quarter of this year as Hope said we get this closed, we'll start reimmediately reinvesting the CAD.

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

Maybe to start, you noted that you expect 60% beta from the rate hike, I think that implies about a 15 basis point or so deposit costs increase. When we look in this quarter, obviously, deposit costs were up 12 without a rate hike. So can you maybe just help us better understand the 12 basis point increase? How much was related to the hike? How much were client deposit costs actually up in -- do you expect there to be residual pressure outside of the rate-driven increases that we've seen?

Do you expect those to persist and I have a follow-up.

Thanks, Ryan. Starting with the 60% beta comment, that is through the cycle. And so quarter-to-quarter, depending on when you have a rate increase earlier late in the quarter, that is not meant to be a quarter in, quarter out. We also only had 2 weeks of this rate hike baked into this quarter. When we look at the rate competition, I've said this previously, the summer month is the most competitive time for us is when we mentioned now 3 years running that we bring -- we bring new customer deposits, specifically in private client, retail some of our commercial clients in at a promo rate. You'll see the $6 million of expenses that we paid out this quarter, which is the cash offers associated with those private client and consumer offers and then you start to walk those back.

So I do think a portion of what increase in Q3 is similar to the last 2 years when we start to lead with rates before we deepen that client and walk it back. As far as exactly what I expect in Q4, Ryan, it really depends on the rate scenario. Do we see 1 hike? Do we see 2? Is it earlier in the quarter or later -- that's why I really focus on the beta part of it because I do think there'll be noise quarter-to-quarter as there has been in past rising and decreasing rates on how that leads and lags in a quarter. But as I said in my prepared remarks, we expect margin to be in the 350s next quarter and continuing to focus on expanding that with the redeployment of this mortgage sale into higher-yielding assets.

Brian, 1 follow-on thought is, in the third quarter, we did have higher average balance of wholesale deposits and they did pull the aggregate rate on deposits up some over the quarter. And with this transaction and our ability to repay that, particularly as mortgage warehouse has come down some, that should take some pressure off deposit costs.

More macro I've often said and long said that over time, technology started with the Internet and cell phones and mobile technology provides a lot more clarity and upward there's going to be some upward movement of deposit costs over time. I know here recently, there's been a lot of focus on genic AI and tools like use and other things like that impacting deposit costs. And while that may be a long-term adoption trend -- it's not something that we expect to have a lot of impact in the very near term that, that will take a lot of time. And fundamentally, I do believe that customer relationships, customer stickiness is still an important part of the business, and we believe that, one, our focus on relationships and all that will help us ameliorate some of the upward drift in deposit costs over time.

It will not eliminate it, but will help ameliorate some of that. But at the end of the day, we think that we have the ability in this rising rate environment to be very, very competitive, we think with the adjusted balance sheet with a loan deposit ratio percent or so, it gives us more flexibility. So we think we're extraordinarily well positioned to navigate this period of rising rates.

Got you. I appreciate all that color. And Bryan, you've been relatively upbeat on loan growth. maybe outside of warehouse, C&I balances and CRE had a little bit of growth, a little bit of shrinkage. Maybe just talk a little bit about the performance? And given the freed up balance sheet capacity, how are you feeling about the ability to lean in a little bit further on loan growth?

Yes. I still am update. And if you get sort of a political environment where the consumer is feeling under some degree of stress. And that there are parts of the economy that are somewhat weaker than others. But generally speaking, demand in the economy is still pretty good. GDP growth, GDP now at Atlanta Fed, I think, is still around 4% for the fourth quarter.

So underlying activity is still pretty good. And we think that loan demand will continue to be reasonably steady. If you look at the mix of our balance sheet you pointed out mortgage warehouse lending came down during the quarter. C&I was relatively flat. We're still seeing some funding up in commercial real estate deals. We don't we follow the market in terms of prognosticating about what the future of rates will do. But it will have some marginal impact on the ability of the economy to create additional lending simply because more deals were not cancel out. But at the end of the day, we feel good about our asset generation capability. We have a unique set of businesses that are in many ways are national and in our specialty lines of business, whether it be mortgage warehouse lending, where we can continue to -- we think we're in additional market share, our franchise finance business, our equipment leasing business, our trucking and transportation businesses. So we think our asset generation capability is still very strong on a relative basis. But I will put all of that against a backdrop. We're going to be smart about what the customer base and the economy gives us, we're going to pick our spots and participate. And we think that this economy was solid is still at a place where rising rates and inflation are likely to slow it down some as we transition into 2027.

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

I guess maybe just on this restructuring -- maybe I missed it. When we think about the loan-to-deposit ratio shifting to 88%, I know you've been very reluctant Bryan to deploy deposits to low-yielding government securities. But as we think about where it's resetting now, how should like -- is that the new normal? And does that also sort of set the stage for you to be able to become 100 billion-plus asset bank where a mid- to high 80s loan-to-deposit ratio feels the right place to be, if you yes.

Thanks for the question. We do -- as I mentioned in my prepared remarks, we will put a good portion into securities immediately, but we do expect to redeploy that into loan growth. The intention is not to grow our securities portfolio. As we think about where loan growth will come from one of the comments, Bryan and I have made consistently on this call and conferences, is our ability to grow loans previously was dependent on our ability to grow deposits balance both sides of the balance sheet. So this does allow us to have some additional growth on the loan side with the deposit side slightly lagging, whether it's either quarter-to-quarter or year-over-year, loan-to-deposit ratio gives us a little bit more ability to loosen up those rains for the right side of the balance sheet to grow. As we think about where we redeploy this -- we are -- as I mentioned in my prepared comments, we are going to put it in floating rate securities. We are expecting rate increases in the coming quarters. So that will also increase the immediate payback as we see that forward curve play out.

It positions us with a slightly more asset-sensitive balance sheet, which is a positive, we think, in this rising rate environment. And we're not with any in any measure reducing our desire to continue to grow the right side of our balance sheet to grow our deposit relationships and broaden and deepen. And we've talked a lot over the course of the last year, 1.5 years, 2 years about our desire to continue to sell our treasury management products to penetrate operating account relationships and to continue to broaden and deepen with our credit customers.

And we think that freeing up the opportunity to take this pool of largely non-relationship assets and move it off the balance sheet and create capacity to put more relationship generating assets on the balance sheet is going to be a net positive for that loan-to-deposit ratio over the long term.

One additional comment on that is that the mortgage sale does shorten our duration and make our immediate asset sensitivity about 100 basis points higher in the near term in a rising rate environment.

Got it. So the action, obviously, from a client relationship ROTCE asset sensitivity understood. And maybe given just the change in the rate outlook or what's happened from the -- for the market. Talk to us about the mortgage warehouse business. Obviously, it's been an attractive business for you. But maybe how are you thinking about it today given where rates are headed. And talk just the health of the underlying clients. Like are you seeing consolidation in that space? Just how should we think about where that may trend over the coming quarters or over the next couple of years?

Yes. I'll come right back to the mortgage warehouse question. I want to add one other benefit. And this repositioning of the balance sheet does not impact our ability to continue to repurchase or return capital, repurchase stock or return capital to our shareholders. We have strong capital ratios and we're comfortable in this 10.25%, 10.5% range, and we intend to resume our repurchase program.

With respect to mortgage lending or mortgage warehouse lending, the third quarter was unique in some ways. We talk about our countercyclical businesses and how through the cycle, we tend to be less asset sensitive than stated in terms of our asset sensitivity disclosures because we have these countercyclical businesses that perform in opposite direction.

The third quarter was unusual in the sense that we started to see the impact on the countercyclical businesses well in advance of the Fed raising rates. And so we think there's likely to be a little less seasonality impact in the fourth quarter in mortgage warehouse lending. We'll see how that plays out with mortgage rates where they are. At the end of the day, the mortgage warehouse lending business came down about $900 million in the quarter. We think it peaked sometime in the second quarter of this year. So that is a very unusual dynamic. We think that we have built share in that business. We have broader lines, and we think we've deepened share with our customers. We expect that there will be some consolidation in the mortgage space we think we're well positioned to continue to serve that customer set, and we will continue to be there. We are positioned with strong participants and while the economics of the mortgage business broadly for us and for everybody else, we'll be a little bit tougher in a lower volume environment, we think we're well positioned.

Tom, I don't know what you would add to that.

Yes. I would add that we've seen some, but not what I would call any outsized consolidation so far. A lot of these operators have obviously been through rapid rate increase cycle only a handful of years ago. And so they're well aware of kind of what would happen in that environment again if we were to see multiple rate increases. So in terms of sizing their companies appropriately from an infrastructure and fixed cost fixed expenses standpoint, we're working with very experienced operators. And so I would continue to expect a very strong credit performance even in the face of multiple rate increases.

What I'll add to what Tom and Bryan already said is -- this is not an NDFI line. We do table fund. So we have the underlying notes at close. So should something happen to one of our clients, we have those notes, we can sell them. And so we don't have the same risk that some of the different mortgage warehouse structures have. We continually talk about -- we've had 1 basis points of charge-off annually in this business as long as we can go back and calculate because we hold the collateral at closing. The other one is that we always point to is this typically stays on our balance sheet 19 days per note. It's just from the time the deal closes at the time it is delivered to the other side. So if we were to see something happen in this business, we had concern, we can bring those lines down pretty quickly.

The next question comes from the line of Michael Rose with Raymond James.

Just wanted to talk about the 100 million plus PPNR opportunity. I think the slides say your about 40% of the way through. How should we think about the repositioning of the $45 million after tax benefits in relation to that. Should we think about this as in addition? Or should we think about it as maybe just accelerating the progress and the path that you're already on?

Think about the $45 million to use your word in addition or incremental to the $100 million pretax pre-provision efforts that we have in place.

Okay. Perfect. And then maybe if you can just outline from here, the extra 60% to get to the original amount. What is still left to happen? And how does the rate picture kind of potentially impact the timing.

Some of it is just timing when you annualize it as you deepen with customers. We've talked a lot about our treasury management success with deepening with existing commercial clients. On average, when you deepen our treasury management relation with the client, it can take 3 to 9 months to actually get that treasury management relationship moved over because of their payroll, their IP, their [ ARR ]. It is a long process for them to move that all over. So some of that is just the annualization. So when we say it's 40%. That's kind of an exit rate and then you pick that up on a full year. The other is we continue to see great success with wealth. We keep talking about how we've rolled out a new partnership with LPL. We've hired new wealth advisers. We're continuing to see that work as we deepen with some of our commercial business owners and others that already are first rising client and then we introduced them to the [ wealth ] side of it. I would say those are the 2 biggest that we still have the tail on. We've continually talked about loan-only relationships, low economic profit, low only and not renewing those at renewals we can't get the profitability up or deep in the relationship. This mortgage sale goes hand to hand with that. These are mortgages that were seasoned on our balance sheet where we did not deepen the relationship.

So Bryan's first question, this is additive to the number, but is completely in line with how we've been rethinking of our portfolio to increase profitability for every single dollar we lend out.

That's very helpful. And I don't want to get ahead of myself and asking about 2027, but just given the benefits from the repositioning. How much opportunity is there as we think about incremental investment in the franchise and things like you mentioned, I hope just on treasury management wealth also leaning into commercial loan growth to basically, how should we think about positive operating leverage for next year? I know it's early, but just trying to better understand the outlook there.

We do not expect to have a significant reinvestment like we did 3 years ago coming out of the termination. We believe we have the right run rate of expenses. We continually say will be inflationary from here on out for expense growth year-over-year, and we expect positive operating leverage next year.

We see, Michael, we see a number of opportunities to continue to invest. So our plans today would include refreshing banking centers, building new banking centers, continuing to hire to invest in technologies, et cetera. And we feel good about our ability to control our expense base. We think we have enough levers in that. We will feel some of the impacts of inflation in certain things like health care and costs and general inflationary type costs. But we think we can maintain a reasonable growth rate in our expense base that we can deliver positive operating leverage into 2027. And I would say, as we sit here and think about 2028, that's our plan going into 2028 as well.

The next question comes from the line of Bernard Von Gizycki with Deutsche Bank.

Just on commercial real estate, it seems expectations have improved throughout the year. I just wonder if you could just share some thoughts on forward expectations and how that look for higher rates impact that at all?

Yes, sure, I'm happy to answer that one. The commercial real estate group has had a lot of momentum. But most importantly, we've remained very disciplined in how we manage that book. And so my expectations are -- if rates go up, I can -- I would expect it to continue to perform very well. And I think the 2 main reasons I'll point to.

One is if you look at our strong loss history, if you go back to the start of 2023 when we were seeing our peak interest rates. Since then, our pre net charge-offs at our average 17 basis points. And so I think that speaks to even in a high rate environment, our discipline really holds up. And those numbers, I mentioned around projects underwritten in a very low post-COVID rate environment. Obviously, the more recent vintages are underwritten to higher interest rates. The other thing I'd point to is, especially on the multifamily side, I think the real root cause has been supply and absorption rate.

On the supply side, CoStar show since the peak in 2022 starts are down 70% units under construction are down 50%. So there's a lot more supply coming on. And then on the absorption side, with what consumers are dealing with right now on top of elevated home prices and higher interest rates, renting is relatively more attractive than buying. And so I think the absorption will be there as well.

Okay. And then just as a follow-up, maybe just on the fixed income side, it seemed maybe it came in a little bit better than expected, I mean, just given the rate [indiscernible] during the quarter and you did highlight some higher client restructuring activity. I'm just wondering, is that maybe just specific to the quarter? Do you think that kind of continues? Just kind of some thoughts on the go-forward expectations on some of those trends?

Yes. We have continued to see in this business over time as you enter a rising rate environment, a quick rising rate or quick decreasing rates. Some of our clients try to get ahead of that and restructure their balance sheet. We saw this when rates were decreasing about this time last year. And I do think, depending on how quickly rates increase, if we do, I don't know where the forward curve is this morning, but yesterday it had 1.5 increases in the back half of the year. I do believe that we could see additional restructuring, but it really is very related to how quickly rates move up and down and our clients' appetite to try to hedge that in advance.

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

Can you unpack what you're seeing in terms of noninterest-bearing deposit balances and mix shift. On one hand, you could argue, customers are already broadly optimized. You're growing operating accounts, you're deepening relationships. But on the other hand, we have some rate hikes in the forward curve. So how do you think about NIB mix? And is there a scenario where NIB balances and IP balances can grow?

Yes. On the first part, we're not seeing mix shift, and we haven't seen it for well over a year now. Customers that were rate-sensitive had already taken advantage of that in a rising rate scenario, and we had stabilized. What we are seeing is the cost of inflation has then have less money in their operating and checking accounts, right? They're spending it more quickly.

So their average balance their average days at a higher balance, a little bit lower. We absolutely believe that we have a franchise -- we have a product set and bankers that can continue to grow deposits, both the noninterest-bearing and interest-bearing as you saw this quarter. There's always seasonality in deposits with commercial clients when they pay their annual taxes or there's seasonality around consumer private client around tax season or bonus season. But we absolutely believe we will continue to grow both of those in the coming quarters and years as we refocus on long -- strong relationship business with our clients.

If I had to take a side on the trade, I'd say customers are much more optimized today than they were a year ago or 6 months ago. There's been a lot of -- there's a lot of data out there about rates. There's very good transparency in the marketplace. And as Hope said, most of the mix shift we see today is just in sort of spending patterns.

And as a follow-up, in terms of your capital priorities. So you used some capital for the mortgage sales? It seems like looking forward, you'll use some capital for resuming buybacks for loan growth. Is it a fair interpretation that this means less of a priority to maybe use capital for a depository acquisition?

I think that's one of the tangential benefits. As I've talked about over the last year, the optionality about doing something small that would create incremental liquidity. I think that makes that significantly less of a priority in our view. And in many ways, deals with that need. So the capital priorities are: one, investing in customer growth, customer and balance sheet activity to being smart with our capital and repatriating it to shareholders opportunistically through repurchasing shares in the marketplace. And we have about a little over $660 million of capacity remaining. So we're in a good place to be -- have a lot of optionality around investing with customers and returning capital to shareholders.

The next question comes from the line of Janet Lee with TD Cowen.

Could you unpack a little bit about the decline in core C&I ex LMC, you talked about how the line utilization dipped in July and August before rebounding again in September. Is there any more things that could explain the decline in C&I outside of those July and August in summer months?

No, not particularly. The loans to mortgage companies is really seasonally driven as well as just the [indiscernible] environment in terms of other core C&I, as you would expect, there were increases in some sectors and decreases in other, there wasn't any major driver in one direction or the other.

It's speculation/projection. But I think customers are like all of us, I see headline fuel cost inflation going up significantly during the course of the summer, diesel fuel supplies. You see a lot of competitive dynamics. And I think people are just being thoughtful about where are we in the economy, what's next? And I don't read anything into it of a negative been at this point, I think it's just ordinary course of business.

We increased the level of lines that are outstanding in the quarter, and I fully expect that over time, customers will take those lines, use them and put them to work and growing in their businesses.

Right. So it seems like you're expecting for commercial lending growth momentum to increase versus the third quarter. On the mortgage can also, it looks like the 4% EPS accretion seems like floor since that's not assuming any benefit from partial deployment into higher-yielding loans. Can you help us quantify what partial means here of the $4.5 billion coming off the balance sheet, how much should we expect to redeploy into C&I and CRE as mid-single-digit kind of growth still a right place to be?

Well, yes, I think I think the pro forma is invested in securities. And my working assumption is that over the next 2 to 3 years, we can deploy half of the $4.5 billion is the call it, a little over $2 billion in incremental loan growth activity over the next 2 to 3 years. Again, it's dependent upon what the economy gives us. And how interest rates and inflation impact things. But we think with our asset generation capability, we can pick up incremental growth in that range.

Your next question comes from the line of Jared Shaw with Barclays.

So just going back, I guess, to the bigger strategic view with this sale, should we expect any additional bigger moves to execute on that Five Flag strategy? Or is it more of like executing on the blocking and tackling like Coke mentioned around treasury management, wealth management and things like that?

Yes. I think -- in terms of a big balance sheet profile changing things, I wouldn't expect anything else at this point. I think the -- you used a great phrase blocking and tackling. The $100 million is a blocking and tackling exercise Hope did a great job describing some of the actions. But it really is customers work on cycles, our relationship with them on cycles, and it really is hundreds if not thousands of bankers every single day interacting on sort of the premise that I laid out in my prepared comments that we want to broaden and deepen customer relationships and thinking about how we proactively look for opportunities to deliver more valuable advice, counsel and support for our customers and at the same time, deepen our relationship, but it is a blocking and tackling exercise.

Okay. And then just a follow-up for me more bookkeeping. When we look at the securities portfolio, apart from what you're going to be putting in from this sale, what's the cash flow been looking like there? And what's your new reinvestment rate versus the roll off on that?

Yes. Jared, we have that in our deck. I'm just trying to turn the page. I think it's approximately $1 billion of securities with a roll-off yield of currently 2.9%. And as of today, floating rates in the mid-450s -- mid-4s, sorry, SOFR plus -- if we do see rate increases, obviously, that gets higher as the reinvestment, the mid-4s moves up 25, 50 basis points, et cetera, so far and Fed funds move up in the future quarters.

Your next question comes from the line of Anthony Elian with JPMorgan.

Can you help unpack what drove the reduction to the revenue outlook? You have tailwinds to NII from the bottom of Slide 8, you noted a few times hope that NIM is expected to increase to the 350s in 4Q. But is that not enough to offset the lower countercyclical revenue in 4Q?

Yes. Thank you for the question. I think we're sitting right at about 4% for the first 9 months of the year. If you look at Q4 of last year, it's not as much about momentum quarter-over-quarter, but we had a really strong Q4 last year in our counter cyclical, it was a high point for mortgage warehouse balances, which is typically a low point of the year that they had a significant increase in Q4. We also saw really strong ADR in FHN Financial that we do not expect to repeat in Q4 of this year.

And then on expense, you saw a step-up in expense ex deferred comp in 3Q, but you're still pointing to flat for the full year expense range. I think that would imply a step down in 4Q. What's driving that and the unchanged expense outlook? I asked because if I look at the past few years, 4Q expense has been up sequentially.

Yes. A few things in that is the timing of our cash incentives that were paid out for deposits was a high point. So if you look at noninterest expense in Q2, Q3 and Q4, there is absolutely seasonality in that line. The other is really as we think about completing multiple technology and AI investment, we're starting to see the expense realization come in. And the third part of that, as we talked about, we had a restructuring of our mortgage business as well as some other smaller restructurings in the quarter that reduced our go-forward run rate for personnel and associated costs with that.

Your next question comes from the line of Timur Braziler with UBS.

A couple more on the restructuring. Just the near-term opportunity in terms of wholesale reduction versus securities purchase, I guess, what portion of the proceeds are going towards reducing wholesale?

Yes. We don't have that exact number yet. I think it's really -- we're looking through all the scenarios. As we mentioned in our prepared remarks, we just closed on this transaction last week, and we expect to close this month. So we're still in the early phases of putting that all back to work. I do think it's more a mix into securities and wholesale funding. As Bryan mentioned earlier, we did end the quarter with higher wholesale funding than we needed due to the way you ladder that out. You make a 30-day, 60-day commitment. We brought in more client deposits. So that wholesale funding will come down beyond just the impact of the sale.

Got it. And then maybe bigger picture, I guess what is this restructuring transaction, say, if anything, about First Horizon's willingness to remain independent? And does this broadly change anything from a strategic optionality standpoint going forward?

I think in broad terms, it increases our optionality. It creates a more profitable customer-centric balance sheet. We remain as flexible in terms of our capital repatriation. And while I've said many, many times over the last couple of years, we're going to continue to operate the business with a long-term vision of creating value for our customers, our communities, our shareholders and our associates. We're not changing or reducing in our view, any optionality we have for the future.

I just need to clean up my words per my legal advisement here. We finalized last week and we settled this month. Apparently, I got my legal terms backwards on the transaction. So note from our legal team. I just want to clean up my language there.

We signed a sale agreement we'll close it.

Correct. I want to make sure it's appropriately recognized in the transcript.

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

This is Brooks on for David Severini. You mentioned that the sale adds about 100 basis points of near-term asset sensitivity and the proceeds going into floating rate securities. You guys still have some received fixed swaps maturing in 2027. And then in the hiking cycle, would you restructure or unwind any of those hedges or let them run off and keep the extra asset sensitivity?

Great question, Brook. And I'll say we're always evaluating what our options are, but bringing down the duration of the portfolio was a positive to this transaction. But we are not -- as Bryan mentioned earlier, we're not in the near term looking at any other transactions at this time. But we're always reevaluating our balance sheet based on changing rates environments, whether it's increasing, decreasing flat. So that is part of our regular cadence to look at our asset sensitivity and make sure that we're hedged correctly on both sides of the balance sheet.

And I know this is somewhat repetitive, but as I mentioned earlier, we do think about the countercyclical businesses in terms of our aggregate sensitivity business. So we're never quite as asset sensitive in rising or a falling rate environment. So when we look at balance sheet derivatives, we look at it in total and how the balance sheet will perform through in our view, through an earnings cycle. So we'll make those decisions as we get closer.

Your next question comes from the line of Casey Haire with Autonomous Research.

Great. Just 1 more to me -- the 60% beta, I guess my question is, why is that not lower through the cycle? I mean, that very much lines up with what you guys did in the last hike cycle. And it sounds like you guys are -- with the stronger liquidity profile, you're more willing to let loan growth pick up and deposit growth kind of lag. So that would give you the opportunity in theory to do better than that 60% deposit beta. Just wondering why that's still the target and if whether or not that's conservative.

I would say that target is a little bit lower than what we saw through the last rising rate cycle because we had the banking crisis in there. We actually topped out closer to the 70%. So it is slightly down from that. I think it's an early guess, Casey. The question is how much -- as we've talked about every call, it is a competitive environment for deposits, how much loan growth is there in the environment impacts what the competitive nature of deposit is the balance sheet going to shrink at any point in that cycle. And so I'd say use it as a proxy, but absolutely, we would love to beat it.

Your next question comes from the line of Edward Najarian with Hovde Group.

Most of my questions were answered. Just a quick question on capital deployment and stock buybacks. Bryan, you mentioned that you're going to continue to -- you're going to resume the stock buyback you were buying back very rapidly really through the first quarter, a little bit less in the second quarter and then stopped in the third quarter. Now you're down to 10.3% on CET1. I guess 2 questions. First is the moment this transaction closes next week or whenever that is, to what extent does that enhance the 10.3% CET1, do you step up when these things go off and then to what extent is that? And then, Bryan, could you give us any sense of how rapidly or what kind of focus you have on buying back stock in the near term? And is there sort of a low threshold, whether it's 10.25% or whatever it is that you don't want to drop below on CET1?

So it's been a long time and a good talk to you.

The yes, Bryan, it's been a long time, I could talk to you back then.

Buyback is one of the things that we're opportunistic about. And as we look at capital we look at it relative to a number of risks in the balance sheet, everything from our stress testing to our bottoms-up analysis of capitalization. And we think we're very comfortable in that 10.25% to 10.5% range post this transaction. We expect to continue to generate a fair amount of capital, which will support growth. We expect that we have the ability to continue to repatriate capital to shareholders.

So there's not a hard floor, there's not a hard ceiling. We continue to, as a Board, to sit down every quarter as we go through our financial performance and the outlook on the economy to evaluate where we are. But given this transaction, where we are post the sale of the loans and our outlook on the economy, credit, so on and so forth. We do think we have capacity to use a portion of this capital -- excuse me, this buyback and our capital base to repatriate some capital in the fourth quarter and going into the first. We have been opportunistic over the course of the last couple of years, and we have repurchased a significant amount of stock.

And clearly, when it's in our view, on sale at prices like we see in the market over the last week or 2 as the industry has come down, we will continue to use that as an opportunity to buy.

Hope, is there any kind of a projection or levels we should think about where CET1 would be the moment the day that these loans actually leave the balance sheet.

No, it's not a material impact we've already marked on. That's how we use capital this quarter. I talked about in my opening remarks that average TCE was much higher than period end TCE we marked these all at quarter end when we entered into an agreement to sell and so that has already happened. What we did have to do is stop all share buybacks. When you're in a discussion of something like this, regardless of what your capital target is, you cannot be in share buybacks. We do not do an ASR. We stay active in the market throughout the quarter. so that we have leveraged to say -- you mentioned in the prior quarter, we had really significant loan growth in prior quarter, which we put that capital used in and then use the delta to figure out how we get within our CET1 target.

We don't set a dollar amount at the end of -- at the beginning of each quarter with our board for a quarter. We really look at how do we deploy capital to loans first and then shareholder second, targeting that CET1 kind of our denominator on that calculation.

Your next question comes from the line of Christopher Marinac with Green Capital.

I wanted to ask a question to Tom about C&I losses, and I know we've got the broader guide for losses for the year. But just curious at the C&I level that we've seen this quarter and last quarter. Is that still a good number in the near term? Or would you expect that to change either side?

Yes. C&I net charge-offs have been fairly consistent. Obviously, quarter-to-quarter, there's some ups and downs, but it's remained relatively consistent. I don't have any reason to believe it would materially deviate one way or the other in the upcoming quarters. Probably not surprising where it's coming from is generally things that are more closely tied to discretionary consumer spending in the current environment. So discussion in consumer, retail trade, some manufacturing, that's essentially kind of where we've been seeing it.

It's largely -- this is Bryan. Chris, it's largely idiosyncratic. There's no huge patterns developing.

Okay. Great. And then just a related question. The balances we've seen on the unfunded C&I, we could still interpret that as a kind of net growth of customers, both new and existing on the platform.

Yes. Yes. In terms of putting unfunded commitments onto the balance sheet is net growth in customers, broadening and deepening customer relationships and new customers.

Yes, that's right.

Your next question comes from the line of Ben Gerlinger with Citi.

Just want to follow up a little bit on Casey's question about deposit betas. [indiscernible] to here give you liquidity or reducing your loan-to-deposit ratio. Like isn't the kind of the positive years that your overall beta shouldn't be a pressure to kind of in theory hot money type clients looking for more yield? Or is it potentially like you might have continued loan or deposit balance growth? I'm just kind of curious on why the beta wouldn't be a step lower over this next hike cycle.

Well, Hope, can give you a mechanical answer to that. I'll give you my 40,000-foot view. And it is -- we're forecasting out a cycle and the competitive landscape and what happens is a little bit unknown to us like it is to everybody else. And so we're placing a forecast out there that's in line with what we have seen in past cycles. We are going to optimize our deposit pricing capability as best we can.

But it is important, as I've said in the past, we're not playing solitaire in the marketplace and that we're going out there competing to broaden and deepen customer relationships. We're looking to acquire new customers and so we think in a context, plus or minus 60% that we can operate in that area, and that is our outlook. I would not try to read too much into or fly spec whether that's 58 or 62 at this point because there are too many unknowns in the operating environment. But we are at every single day looking for how we strike that balance with providing real value to customers and prospective customers and do it in a way that drives profitability.

What I would add to that, Ben, is you asked the question about hot money. We don't chase hot money. We do not have a large CD portfolio. We don't have a national deposit franchise where we market higher rates across our footprint. But we do have clients that want to be treated fairly and get a fair value. And so as they see the rates moving up, they're going to call their banker here and says, "Hey, I've seen this or I think called from other bankers. So a lot of it is protecting your back book and protecting your client relationship. We do run an asset-sensitive balance sheet. And so a lot of our clients was asked a lot of critic questions, their cost of funding is going to go up with each rate hike. To the extent that they have interest-bearing deposits with us, they're going to try to offset that as an earning asset. And so don't think about it as chasing hot money, and we continue to put in our earnings deck that we retained 90-plus percent clients each quarter in the depository space, but that requires us to pay them fairly once they're in, not just reward a new customer with top of market. That's how we retain those relationships.

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

Bryan, you obviously got a capital the capital to do this trade. I'm interested in the discussion about earn-backs with this. Obviously, there's a earnings initially and earnings over time. But relative to buying back the stock, and the answer might be you could do both, but the earn back on paper looks long, but just any color behind that decision would be great.

Yes. I would say the arm back on paper is the minimum. That is your immediate return and we just put this all in securities and you don't see significant rising rate environment. So -- when we think about the payback, we are assuming that, as Bryan said earlier, approximately half of this is redeployed into loans in the coming years, and that payback comes significantly in line. I'm not sure what assumptions you were using, Chris, in your question there. But I do want to reiterate what we put in the deck is the immediate impact in the current rate scenario.

Yes. The earn back, if you just assume we invested in floating rates, short-term securities, that is a longer earn-back. If you assume like we believe we can, that we can invest in incremental customer relationships over the next couple of years, call it, half of the proceeds, the earn back comes in very favorable vis-a-vis a stock buyback.

To put that in line with my earlier comments, we talked about securities being SOFR plus 50 currently, and we talk about our loan deployment being in the SOFR plus mid-100s to mid-200s. And so for every dollar that you redeploy, you pick up much more 100-plus basis points more on average than what will be in the securities day 1.

So what we tried to do is tell you what the immediate impact is and then it's upside from there as to how quickly redeploy it at 150 or 200 basis points higher than what it will be in securities day one.

The last question comes from the line of Russ Anderson with Evercore.

This is Ross Anderson on for John Pancari. Just on -- Tom, you touched on the credit performance and user in the multifamily supply picture. Could you just talk a little bit more about what you're seeing in updated property valuations and refinancing, borrowers have to bring more equity to the table or cash flows generally supporting renewals on existing terms.

Yes, we actually continue to see a very robust market for refinancing our predevelopment deals. Some of this is commercial banks or some of it is private credit. There's a lot of deals on the market. That's what contributed to a very [indiscernible] and slow down the value alerts such as only in Texas than to supply those cases in kind of the most even in dress mark travel, we've seen no real evaluate and not updated [indiscernible] of about 20% and with we already consist through all site always to [indiscernible] so we insist certainly in the set cost loan. And so we have a significant distension years ago current for a confidence is still why we've been [indiscernible].

Sorry, could you guys hear us on that last answer, I got some feedback that we maybe have some audio issues in that last answer. Yes, I'm happy to repeat that. What I was saying is, overall, the refinance market has actually remained pretty solid. We've seen a number of our deals taken out by commercial banks. But but also by private credit and much more often than not without any additional equity coming in. That's because overall property values have held up, I think, relatively well -- relative to expectations even in markets with the greatest oversupply like the markets in Texas, where we've seen updated appraisals, generally speaking, kind of where we've seen where we have seen decreases even kind of the higher cases of those, it's been about a negative 20% and considering we've been very consistent and always underwriting to about 40% equity coming in the deals. And so 60% LTC, that has -- we've been able to absorb any of those decreases and still maintain a healthy amount of equity in our deals.

So I was pointing to, I think that's a big contributor this discipline we've kept and not chasing the market. That's why even in peak interest rates, we have continued to perform very well in our CRE portfolio.

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.

Thank you, Eric. Thank you all for joining us this morning. I appreciate your interest and patience as we try to work through some of the complexity of this quarter. We think we're very, very well positioned for the fourth quarter and '27. Please reach out if there's anything at all we can do to give you additional information. I hope everyone has a wonderful day.

Good morning. Thanks for staying with us. We're pleased to have First Horizon Corp. join us next and Bryan Jordan, Chairman, President and CEO. Thanks very much for coming in, Bryan.

Thank you for having me.

Maybe just kicking it right off. We're now well into the third quarter. Really what's changed most in your view of the operating environment since July? It's been a lot going on, macro and micro. Where things are tracking differently from what you expected in July?

I think -- it chokes me up to talk about it. I think, first and foremost, it's sort of the volatility in prices, particularly oil and fuel, and how that has an impact on the economy. And given the significant volatility driven by the conflict in Iran, that has been interesting and really the significance of the backup in interest rates. We've seen interest rates back up fairly significantly over really the last 6, 8 months and most importantly, accelerating in the third quarter. So it would be interesting to see how the FOMC deals with the short-term rates this morning -- or this week. And I think that's going to have an impact on the psychology that borrowers, both consumers and commercial customers, have going into the fourth quarter and into 2027.

How would you characterize from -- speaking with commercial customers, how would you characterize the commercial pipelines, the expectation on line utilization and funding needs today?

Yes. Commercial activity continues to be fairly good. Customers are very optimistic. I think some of it is, is that the footprint we serve is blessed with still very strong economic growth and migration and investment building, and customers are still front-footed and optimistic. I think there is -- we hear more caution -- I hear more caution when I talk to customers today than I heard maybe 4, 5, 6 months ago. But I'd say, in general, people are still pretty optimistic, and pipelines have been reasonably strong. Utilization has drifted down a little bit. But at the end of the day, I think the economy is still ticking along at a very low but positive growth rate.

What would you say, which parts of the franchise are providing the greatest upside right now?

I think just by virtue of the cycle that we've talked about a few times, commercial real estate has started to drift up or move up again. We see pretty good growth in commercial real estate lending. You'll remember that the way we fund construction lending, it funds up and then it goes into the permanent markets and pays down. And there was a little bit of a pause in there a couple of years ago. So we saw commercial real estate drifting down. We said earlier in the year, pipelines have been strong, and that is sort of a spring-loaded effect on the balance sheet. So that will continue to drive some growth.

I think on the other hand, it looks like our mortgage warehouse business probably peaked in the June, maybe July time frame as you've seen residential home sales dropping, mortgage originations due to higher rates, et cetera, slowing down a little bit. So that's been a bit softer than we would have expected given the seasonality that exists in the business. But in general, C&I has been pretty steady. Commercial real estate looks good. And we feel good about how the balance sheet is positioned, and the credit quality continues to look very good and is holding up well.

You've increasingly been talking about the Five Flags framework. How does that framework help drive the company forward? And how does it influence decisions around bankers, technology investments and resource allocation?

Yes. We have started over the last really 18 months, have worked internally on what we refer to, as you said, the Five Flags framework, and it is a reference to nautical signaling in the flags in the nautical world. But it really is an effort to talk about internally where we think we play most effectively on the field. So if you think about the financial services industry as a side to sideline football game, we believe we play best between the hash marks. And so we set this Five Flags framework up, which is really a 5- or 6-page summary of our strategic plan as a way for our decision-makers, and there are thousands of decision-makers when it comes to serving customers to think about how we play best in that framework. So it starts with how we measure our success.

Most importantly, it defines the customer set that we believe that we can do the best job of servicing small to midsized commercial businesses as an example, middle market banking, our specialty businesses, things of that nature and is a way to really have a conversation. And over the last 18 months, we've talked to everybody in the organization. We've built the foundational support for that. And as I look at the progress we've made, I think we're probably ahead of where I would have expected us to be when we started rolling this out in the spring of 2025.

When you're looking at that, how do you distinguish activity metrics from realized revenue and risk-adjusted profitability?

Yes. It's -- one of the things that it drove and I started talking about it in the middle of last year more publicly is we thought, look, given the balance sheet that we have, we see a tremendous opportunity to broaden and deepen relationships within that Five Flags framework. And one of the key tenets is we don't want to be a loan-only transaction-oriented balance sheet. We want to build deep and broad customer relationships. So if you start with that as a premise, you can go through your customer sets, you can go through your balance sheet, and you can see lots of opportunities to cross-sell treasury management or introduce the treasury management teams, opportunities to introduce Private Client Wealth Managers to your commercial customers.

And there's just a wealth of those opportunities. And we have seen significant improvement in profitability as a result of that improvement in spreads on commercial real estate lending in market. And so it's been the foundational aspect that we've built a lot of measures that we think ultimately will drive significantly more profitability out of that existing balance sheet.

Along those lines, you've talked about the $100 million-plus revenue-driven PPNR opportunity. How should investors think about assessing progress along that goal?

Yes. That's one that we've really struggled, and Tyler and Hope and I have spent a lot of time thinking about it. When we laid out our expectations for 2026 in terms of the framework of how our balance sheet and income statement will perform, that's embedded in it. So it's hard to talk about that separately from what we have in terms of embedded outlook for the year.

We are making progress on it. And then I've mentioned commercial real estate, Market Investor CRE. We have put in place mechanisms to help make sure that our professional CRE folks are looking at Market Investor CRE deals that are done in the local market. An example is we've improved spreads 50 basis points on a year-over-year basis, better terms and structure, too. And that shows up in net interest margin, but that kind of thing is built into our expectations. So we've struggled a little bit with saying we're 30%, 40%, 50% of the way there. We're probably in that area, but it's hard to lay that out on the chart.

Is it still -- is the 2- to 3-year framework still the right way to think about that initial opportunity?

Absolutely. Absolutely. Because some of that deepening activity, treasury management is a great example, that's not a product that the customer just -- you meet with them, introduce a treasury sales team and then you convert it that afternoon. That takes months, weeks, years to build that relationship and the product set, et cetera. So some of this is a building process. So 2 to 3 years is the right time frame. And it really -- the clock probably started running sometime last year.

You talked about focusing on relationships and profitability. How has that focus changed the decision-making process across the existing book?

At the end of the day, our processes are very decentralized. We try to deliver with a community bank look and feel. Our commercial bankers and our credit teams are generally in the marketplace. They have a lot of knowledge of relationships and broad and deep. So it's interesting to watch the conversations that have evolved because of that relationship focus. And you will see us talk about over the last, call it, 12 months and really the next 8 to 12 months, there is a lot more activity in our balance sheet where we've said, "Okay, we've invested in a loan-only relationship for the last 2 to 3 years. We've not been able to penetrate further than that. So we will trade out of that relationship." And we might trade into another loan-only relationship, but with the idea that we can penetrate other products.

So it is having the desired effect. I said earlier, I thought we were ahead of schedule. Just seeing the conversations has been encouraging. And it's not to say that we don't do credit-only lending because some of our specialty businesses have significantly more credit exposure than they have deposit exposure. But at the end of the day, the conversations have gotten very good. And I think people are thinking not only about what is the return on the transaction, but how do I maximize the value of a relationship, most importantly, in a way that is a winning opportunity or proposition for our customer because that's how you build the long-term deep partnership. The customer wins in a situation like that.

And I guess how do deposits, treasury management, wealth, capital markets and credit usage factor into those decisions?

Yes. It's clearly -- the important part of banking is you got to fund the left side with the right side of the balance sheet. And the deposit relationships are very, very important. And our bankers have incentives, and they have really a lot of discussion with customers about how we build the right side of the balance sheet. And I've been encouraged by the progress that we've seen. I talked about loan trends earlier. Balance sheet trends on the right side of the balance sheet have been very good. Customer deposit growth has been reasonably strong in the third quarter. And I think that's a function of that continued conversation and continuing looking for opportunities to penetrate and build and broaden relationships.

Where does the specialty lending fit into, I guess, the broader $100 million opportunity or the relationship side of building the bank?

Yes. The specialty businesses are also engaged in this conversation about broadening and deepening relationship. And the nature of some of those businesses don't have as many deposit-generating opportunities, take a mortgage warehouse finance business or mortgage warehouse lending business. But within that, there's still a lot of work about, "Okay, how do we serve your escrow deposit needs?" and things of that nature. So even in the specialty businesses, which tend to be generators of higher returning assets, and lower deposit generation, there's still conversation about how do we maximize and broaden that relationship, whether it be deposits, whether it be derivatives or other services. So it really is an important conversation in really all aspects of our business.

Wealth Management has become a much more meaningful contributor to the bank. What's driven that success? And where do you see the largest opportunity going forward?

Yes. The Wealth Management business has been a very good business for us. About this time last year, we converted our core system there. We're now on a better and more capable set of platforms and systems for us to do modeling to help our advisers serve their customer base. And so that has been positive. We've continued to fill out the legacy IBERIA footprint where we did not have as many Wealth Advisers in market.

And then as I said earlier, the ability to just broaden and deepen penetration with existing customers. If you're a wealth adviser or a private client banker, one of the most important places that you can start prospecting is just in commercial loan files. And you do a lot of that with AI today, things of that nature. So there are just lots of opportunities for us to continue to broaden across our existing footprint and bring that service into customers in a way that introduces them and broadens -- introduces them to other services, but deepens that relationship over the long term.

Looking at that -- I won't say cross-sell, but expansion into existing relationships, how large do you think Wealth can become at First Horizon?

I think Wealth will continue to grow. I think the way we measure and the way we get paid in the business tends to be on how the markets perform. It's similar to the way others approach it. But I think it can continue to be a very nice portion of our consumer business. And I think over time, Private Client and Wealth is likely to drive greater profitability on the consumer side than -- greater profitability growth than our traditional consumer banking businesses because some of the secular pressures that are occurring there with deposit costs, et cetera. So I'm optimistic that Private Client Wealth, which is one of our focus businesses, will continue to drive a good bit of profitability for us.

Great. More broadly, you've highlighted the success of hiring experienced bankers from larger institutions. How has that cohort progressed from recruitment to production?

Yes. We've had some success, and I'd say pretty significant success hiring bankers across the footprint. And there are a number of reasons for that, and we're encouraged by the folks that we're bringing into the organization. A lot of that has been in the last couple of years. And so we're starting to see portfolios move, and we're seeing progress in growing and broadening our penetration in some of these markets like in Atlanta. We've hired a lot of bankers in and around New Orleans, and we're seeing very good traction there and feel good about, one, our ability to continue to hire; and two, our ability to move customer relationships. The proposition that we present for a prospective banker and their customers is the banker is going to walk into a customer's office with a great deal of confidence about what they can and cannot get done.

It ties back to the framework that we laid out or discussed with Five Flags. And they know that they have a credit team that is close that they can bring out and meet the customer. And so we're seeing that being an appealing proposition for bankers. And then customers that are really relationship-oriented want to be served by a banker who knows what they can get done, and that has been very effective for us.

Along those lines, how has competition been evolving over the markets as we move through the year? Are you seeing more focus on funding and pricing or...

Yes. Well, competition by virtue of where we do business is always tough, and there's always a lot of investment going on in our footprint, new de novo branching, et cetera. So we're used to tough competition and good competition. But it's -- the market, I would say, deposit pricing has been more steady or stable in the last 2 or 3 months than it has been in the handful of months before that. It's -- I think, growth has slowed down a little bit. And I think we're seeing competition be reasonably steady at this point.

As we sat here last year, we were expecting rate cuts. Now we're expecting rate hikes. Any updated thoughts to beta if we do get some hikes this week or later in the year?

Yes. Well, on the whole, we're an asset-sensitive balance sheet. And I say on the whole because through most of the cycle, we have our countercyclical businesses, which work in opposite direction. So if rates are going down, they do better. And if rates are going up, they do a little bit worse. Generally speaking, our net interest margin will benefit from rising rates.

I would say that in some respects, if you take my comments earlier that mortgages slowed down in advance of the Fed raising short-term rates where most of our balance sheet is priced and the fact that the fixed income business has been very volatile, but at relatively low average daily revenues, then we've sort of incurred some of the offsets. So in short, I think our balance sheet will benefit more than it might otherwise would have if the Fed starts moving up short-term rates. If SOFR, for example, and the Fed funds rates move up where most of our balance sheet is tied, I think you'll start to see that benefit flow through in the -- really the fourth quarter if they raise rates this week.

Are commercial clients responding to the rate outlook? And are you seeing that be a major part of discussion on utilization or growth?

Well, clearly, the cost of funds affects any financial model. So our customers, like anybody else, will look at what does it cost to fund a specific transaction, whether it's to build a building or whether that's to buy a company or put a piece of equipment in. So that has the effect. And ultimately, that's the intended impact that the Fed and the FOMC has when they raise rates is to slow things down. So customers are focusing on it.

In the near term, we're not at a huge inflection point, and the steepness of the yield curve has started to have people start talking about swaps and things of that nature. But generally, it's not -- the market doesn't seem to have reacted a whole lot in advance of the Fed starting to make these rate increases if that's what they ultimately do.

When you look at your customer base, commercial customer base, where do you think -- which industries appear most sensitive to you?

The interest rates, the first one is going to be our mortgage warehouse lending business, is going to be sensitive to what refi activity looks like. I think next most likely is going to be in commercial real estate lending, will the continued investment pencil out to build new projects. But I think at least at this point, it doesn't feel like it's going to be a big shift in interest rates. It feels like customers are still expecting fairly modest increases over the next 12 to 18 months. I'd consider more fine-tuning than anything.

Great. You talked about FHN and some of the pressure on ADRs there. Do you view broader regulatory capital relief as creating an opportunity for FHN Financial?

I think FHN Financial is an appropriately sized business. And we look at that business as really a business of matching up buyers and sellers. And so we're constantly looking at are there opportunities to put different products or put different tools in the toolbox for our teams. But ultimately, it's not a business where we're using a lot of balance sheet and really don't look to use more balance sheet than we do today simply because we want to go home at night, as close to flat in terms of interest rate exposure.

When we put a bond in inventory, if it's not sold in 30 days, we force it into the marketplace. So we're very disciplined about not running a trading portfolio in the sense of making proprietary bets. And so we have enough balance sheet that we can match up buyers and sellers. And I think that business is appropriately sized, and then we'll look for opportunities to fill in the product set as they present themselves and the customer needs dictate. But it feels like we're in a pretty good place today.

Maybe shifting over to AI. That's a main theme for the industry and really across the economy. What's shifted over the last year and how First Horizon is using AI across the organization?

Yes. I'm smiling because AI, I mean -- this week, we're in a debate about whether we ought to put guardrails around AI. The pace of acceleration is rather amazing. We have made a great deal of progress using artificial intelligence to improve process, and I think there are tremendous opportunities. If I back up to 40,000 feet and think about the opportunities for AI in our business, I think first and foremost, I think artificial intelligence is going to be somewhat, if not as significant, but somewhat of a leveler in financial services.

I think it's going to make it much more affordable for an organization like First Horizon, which will be a fast follower in terms of investments in technology. It's going to make it much more affordable. In other words, narrow the moat between some of the huge investments that the largest banks are making in technology. So I think that's a positive. I think it will improve our ability to get answers to customers quickly, will have much more ability to take a loan request from a customer and turn that around in hours, days, not weeks. So I think it's going to present workflow opportunities. It's going to present customer service opportunities. And ultimately, it's going to allow us to put more technology, better technology in front of our customers, in front of our bankers and really make us much more capable of staying table stakes at best with technology and investments.

So when I look across that outlook, I think we're making -- the investments we're making today are proving out that thesis. And I think it's going to be an interesting 4, 5, 6 years as we really learn how to deploy artificial intelligence in a way that is most effective in driving towards the future.

Are there any use cases that have already moved from experimentation into production at the bank?

Yes. There are a number of use cases, and we've put AI research tools inside our firewall, we call it ChatFHN, but we put that in everybody's hands. We put -- we came up with 100 different ideas in a little contest that we built internally. I guess it qualifies as some sort of hackathon, but people generate a number of ideas, and we put those into practice. We've now taken the ability to take a set of financial statements and tax returns from a customer and spread those financial statements and be in a position to start generating a credit memo from that.

This is all stuff that can be done manually, but we're making progress, and we're -- we still have a lot of human in the loop because it does require verification and testing, but you have human in the loop if I were a junior analyst spreading those financial statements. So I think we're seeing a lot of progress on new processes around commercial lending and serving customers better. And then we've been using it to generate software and code for the last several years, like I imagine everybody else, and that's cutting significant hours out of -- more than hours, it's cutting weeks out of software generation. And that's allowing us to do an awful lot more.

How are you managing governance and risk with AI?

Yes. That's one of the things that we spend a lot of time on. And we do a lot of model testing, and we spend a lot of time talking about how you monitor the outcomes, and I've mentioned human in the loop. Human in the loop is one of the control processes that we still have to make sure that we're getting the right outcome, but we spend a lot of time talking about creating the testing that we think ultimately will give us the capabilities to ensure the accuracy of outcomes.

Maybe shifting a little more to capital. The capital backdrop appears increasingly favorable. How are you thinking about optimal capital levels today and some of the potential benefits from Basel III revisions?

Yes. So I think, in the last couple of months, we put out that our estimate was something like a 10% risk-weighted asset adjustment if Basel III was implemented as proposed. And since then, we put out our capital stress testing, which we still complete on an annual basis. We're always in the process of evaluating how we deploy capital, how we put that to work in the business. And we've been operating at sort of a 10.5% CET1 targeted ratio.

We have allocated over the last 18 months a tremendous amount of capital to stock repurchase or repatriation to shareholders. And that's a constant discussion that we have with our Board, and we think about it as a management team. We clearly wanted to deploy it in organic growth. We evaluate the other opportunities for evaluating how to deploy that capital. And ultimately, what is the right level of capitalization in the organization. And that's an ongoing process. And as the economy unfolds, interest rate things unfold, we'll continue to make those evaluations.

When you look at that 10.5% CET level, that's obviously a lot higher than it was going into sort of COVID and for the industry. Do you see that drifting lower over time? Or is that you think a new longer-term?

Well, yes. I think that we can clearly operate the business on a capital ratio that's probably between that 10% and 10.5% CET1 ratio over the long term, and we'll find the right time to migrate in that range. I think one of the takeaways of the crisis of a few banks in 2023 is when people start running screens, there are all sorts of simplistic analysis, and it doesn't really factor in that a mortgage warehouse loan draws 100% capital, but a residential mortgage loan draws 50% capital, and those are the same underlying collateral.

So we're going to manage those capital ratios based on what our stress testing, our bottoms-up analysis tells us that we need to be safe and sound, but we're also not going to get out of the pack and show up as an outlier on the screen. So among -- in all of that, we think we can operate the business at lower levels. And depending on the mix of the balance sheet, if you have a huge mortgage refi boom, if rates were to drop significantly over the next 2 years, would I feel comfortable with a lower CET1 ratio than even 10%? Yes, probably. But it is part of a dynamic process where we're constantly evaluating what is the right capitalization for that business or the risk we have in our existing balance sheet.

Great. We have a few minutes if there's any questions from the audience, happy to take them. No?

Bryan, I guess as you look out over the next year, 1.5 years, where do you think the most potential upside to the story is coming from? And how should we as analysts and investors sort of score that to judge our progress?

Yes. I think as I look at the next several years, I feel good about the progress that we're making, staying focused or focusing the business on where we create value for our shareholders, driving improved profitability. We've seen the ability to improve our margins in the business. We have seen stability in those margins. And as I look at the $100 million of pretax profitability improvement, I think we're making good progress on that.

And then you put all of that against the backdrop where we're doing business in essentially 12 Southern states that are some of the fastest and most dynamic growth markets in the country and I think having a significant ability to invest capital in high-growth markets all over that footprint to the extent we can hire bankers, acquire customers, I think we have the ability to drive tremendous profitability growth and ultimately improve ROTCEs. We're at 15%-plus today, and I think that number can continue to be improved.

Great. Well, thanks very much. Thanks for joining us, and I hope you have a great day.

Well, pleasure. Thanks for having me.

Welcome to the First Horizon Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Tyler Craft, Head of Investor Relations.

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 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's 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, and you should understand that we are not obligated to update them.

And with that, I'll hand it over to Bryan.

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 countercyclical 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?

Thank you, Bryan. 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 2026. In the quarter, we grew adjusted EPS by $0.01 to $0.64, adjusted PPNR by 1% to $364 million and average loan balances by $1.5 billion. Compared to the first half of 2025, 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 this 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 3.40s 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 and portfolio, lend. 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 [ rebalance ] 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 $594,000, 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 noninterest 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 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 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 targets. 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 impact 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 Slide 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.

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 1 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.

[Operator Instructions] Your first question comes from Jon Arfstrom with RBC Markets.

Just wanted to ask a couple of 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, but what can we expect from here on deposit costs and funding costs in general?

Jon, 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. And if we continue to see this trajectory. I do think that our beta will continue to shrink slightly.

But 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 cost, knowing that we give some back once rates stop cutting. So this is as expected, Jon. Also, Q2 and Q3 is the most competitive time for offers. You see in our expenses every year in Q2, we talked 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 an increase or decrease will drive that. But I do expect it to continue to increase, consistent with what we saw last year asset of rate cuts.

Okay. And then I guess loan competition and yields, you see a little bit of compression this quarter. But 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?

Yes. I would describe the loan mark is, Jon, is maybe a little surprisingly optimistic. Pipelines have continued to be very strong, whether it's in customer requests for lending or just an anecdotal conversations with customers. People are still very optimistic about the economy and very forward leaning. So I'm surprised at how optimistic things feel, given some of the uncertainty around oil, in particular, and the conflict in the Middle East.

London 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. But at the end of the day, I think you will see over the course of this year, 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.

Yes. Okay. So a little pressure on spreads, but feeling good about volumes is the summary?

Yes. Yes. Yes. Very accurate.

Your next question comes from Michael Rose with Raymond James.

Maybe we can just start on the ADR side. I mean, obviously, you guys kind of gave the update intra-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.

Yes. Well, I'll start. It's hard to put a beat on it. ADRs last week were very strong. So rates are moving. They're very volatile with what's going on in the marketplace. Given the [ VPI ] today, the market is taking some of the certainty for the expected certainty around increases in rates over the back half of this year out is diminishing some. I think we're in a channel where the volatility is going to have a real -- 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 and 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. But I just don't know how rates are going to move given the uncertainty around what's happening in the Middle East in oil and what's happening with the Fed and rate cuts and inflation, we'll know more 30, 60, 90 days from today. But there is very positive signs like a week last week that was very strong.

Perfect. And maybe just a 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 because not all of it can be returned through buybacks and dividends. I would assume that some of it will be putting 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.

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. And I think you might see some lending activity also come back from the secondary markets. But on the whole, I think it's generally a positive thing for the fixed income business. But I wouldn't today speculate on how great that's going to be.

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. But I guess, how much better can it really get in your eyes? And if volatility does persist, could we start to see things maybe trend the other way?

Michael, I think the short answer on NDFIs 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. And so no part isn't necessarily looking for it to get better. I think just a consistent steady performance that we've already had it would be -- that's what I'm expecting and that's what we're managing towards.

Your next question comes from Jared Shaw with Barclays.

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?

Yes. There, 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. But no real main theme.

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

Okay. All right. And then 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? And 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?

Yes. 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. But we continue to reinvest. We have $1.2 billion rolling off at approximately 2.8%, and we're replacing that at 4-plus percent right now. I'd say now because as we just talked about earlier, the rate outlook continues to change. But yes, there's positive momentum for earnings there, but we do not expect a shift in mix on to our balance sheet.

In the 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 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 allow that to migrate down.

Your next question comes from Bernard Von Gizycki with Deutsche Bank.

Just the first question on the brokerage, trust and insurance fees. They've been growing nicely versus the 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? Just talk 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 1 half '26 as part of the growth.

Yes. Thank you for the question. In Q3 of last year, we completed our conversion onto the LPL platform. And so 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 advisers. We've been building out the deepening initiative that you spoke about, which is where do we have commercial clients that we can also cross-sell well to. And I think that momentum or expect that momentum to continue as we continue to get the benefit of growing our franchise through the LPL partnership and new wealth advisers.

Great. And just maybe a follow-up on the hirings like you mentioned in wealth. I know you added a head count of 53 during the quarter. Just any color on the mix of front versus like, say, mid-back office during the quarter or year-to-date? And just any expectations on hiring in the second half of the year?

Yes. We are continuing to hire bankers across our footprint as we did last year is 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 to support partners. The one exception to that in head count growth is fraud. We're continuing to invest people into our fraud business as it gets more and more difficult to fraud for our consumer and our commercial clients.

Ben, I'm 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're seeing positive results from that. And I'm optimistic that over the next 2 to 3 years, you will continue to see that momentum build. So we feel very good about are hiring in the marketplace.

Your next question comes from Janet Lee with TD Cowen.

Just following up on deposits. Is there room for a broker deposit balance 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 CECL strength in core deposits?

Janet, absolutely, that is a possibility, and we do not -- we have not tried 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 tick up in Q2 and Q3, and we would trade that and paying down brokerage.

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

Got it. And on 2026 revenue growth guide, if we as to current mid-single-digit loan growth, perhaps relatively stable cyclical or 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 a fair baseline expectation or assumption that we could assume? Or if not, what are the levers to do better than the low end?

Yes. I think that is one assumption that you can run. We run a series of different scenarios and a changing rate environment and economic outlook One of the comments you meant is 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 countercyclical perform.

Our FHN Financial, as Bryan mentioned earlier, had a great second half of last year. So to 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 early rate increases and other scenarios can run, and we would pick up more NII than that on the exact same balance sheet without growth. And so I think you've got to play all those factors out, not knowing if we'll have a great decrease or increase this year. And we brought all of those scenarios for the back half of this year, and we feel confident that we will be well within that range.

The other lever that Hope mentioned earlier in our prepared comments was we're really focused on how we improve the profitability of the balance sheet. And if you look at loan growth over the last year an improvement in PPNR, we're outpacing the growth in the balance sheet with improvement in profitability. And 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. 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.

Your next question comes from Casey Haire with Autonomous Research.

I wanted to touch on expenses. So the expense cap which you reiterated it assumes that expenses kind of hold flat with this second quarter run rate. The outside services was up quarter-to-quarter, and it kind of ramps last year. So just wondering what -- do I have that right, that expenses kind of hold flat with the second quarter run rate? And what's the outlook on the outside services?

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, onetime expenses related to finishing up some projects and some initiatives and will not repeat in the back half of this year. So we do expect it to be flattish year.

We will see some moving -- movement between outside services and other, and that's really related to the marketing campaigns. Right now, we're in the acquisition phase, so it hits above. And then 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 but we do expect flat expenses in the next 2 quarters from here.

Great. 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 reduct this quarter. I guess first question is how low can that ACL ratio go? And then separately, that the NPL ratio can this momentum continue? Is there an outlook that you can drive that lower from 81 basis points.

Yes. Sure. Casey, I'll answer that in a few different parts. I'll start with the 18 basis point reduction that you mentioned. That is [indiscernible] factors. We have been very diligent in how we manage our portfolio. So what you've seen is a continual decrease in our special mention and substandard assets, we've been very diligent on underwriting and how we resolve those credits. And so 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 economic outlook as well. There are internal factors we control. There are also external factors around economic factors, but you add all that together and actually, I missed a major one, which is obviously a 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 6x our average net charge-offs over the last year and more than 7x over the last 2 years. So I would characterize that as well reserved relative to our performance.

As I look out ahead, where does they see a 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, and I continue our whole team, our whole bank continues to prioritize minimizing losses and maximizing recoveries as opposed to say, timely resolutions and -- but I think we control the things we can control, but there are external factors such as unemployment, interest rates, economic outlook, consumer spending by our inflation geopolitical risk. There's so many things that can influence ACL going forward that I wouldn't speculate on kind of 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. And 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. That -- but like I said, I take a long-term view on all of this rather than trying to get quick resolutions.

Your next question comes from Ebrahim Poonawala with Bank of America.

I just have 2 follow-up questions. I guess, I hope, Bryan, for you. One on capital. If I heard you correctly hope you mentioned risk-weighted assets down about 10% under the standardized approach. That's roughly what 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, yes, in terms of beyond organic growth because it doesn't feel like organic growth is going to absorb all that excess capital?

Ebrahim, thanks for the question. Yes, it is a combination of those and 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, and we look through the next 1 to 2 years for capital, which is what do we believe we're going to need to bundle 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 for the share buybacks. 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 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 will all go into place, Ebrahim, and what the economic environment could be. We came into this year 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 quickly as our markets are growing. I just don't know when that market starts to turn in timing when Basel III end game will be implemented and approved.

Got it. And then, I guess, just separately, so appreciate you outlining the $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 the investment spend is going from a growth standpoint, like how would you sort of characterize that in terms of either bank card hiring? Are you opening branches in new markets? If you can talk through that?

Yes. 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 24/7 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're doing across the organization. We've hired in markets broadly speaking, to go deeper and broader, mostly commercial and wealth type REMs, 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 completed, but 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. And that's one part of the forecast that we have the most certainty over.

We feel very, very good about our ability to control expenses and that's the one 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, invest at the same time manage expenses within the flattish quarter that we've described.

Your next question comes from Ben Gerlinger with Citi.

But it's clear that people are pretty focused on your funding mix, if not interest-bearing call costs. Given that you guys have a pretty seasonal balance sheet, like is there any reason why '26 should have a materially different overall kind of percentages of funding for relative to like 4Q '25, like i.e., broker comes down. And like I'm just trying to get a sense of like you do have seasonal. Is there anything to assume that seasonal doesn't really play itself out again?

No, there's nothing to say that we expect the seasonality and Bryan mentioned in his prepared remarks, and I mentioned my first question, this year, deposit costs in the panel growth is trending just as we've seen in the last 2 years following rate cuts that then stop abruptly. You don't know when or what the next rate movement will be. The only thing that would move that is if we saw it late in the year, mortgage warehouse spike, we saw mortgage refinance late year. That would be the only thing that changed that materially. But no, we do not expect a material change.

Your next question comes from Anthony Elian with JPMorgan.

Hope, another one on deposit costs. Last quarter, you pointed to a slight tick up 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 raise now and your earlier comments on 3Q and 4Q being the most competitive for deposit offers?

I think it's hard to pin it down within 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, well, mortgage warehouse seasonally is higher in the summer. That is the traditional home buying season. We've already seen that. We do match fund mortgage warehouse with wholesale funding traditionally. So I think you've really got to 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're going to be within a couple of basis points, [ 75 ] days from now, but we're trending consistently as we just said, and we're continuing to manage customer costs.

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.

And so 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. And 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 to fund this with the transparency events rate. 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. 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.

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's hard to know given all the moving parts in the marketplace.

And then on the NIM, so on last quarter's call gave us a range of high [ 3.40s ] 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?

I think NIM, we expect it to settle in this year in the mid-3, 4s to high 3, 4s. That will vary -- basis point or 2 on NIM for us is really about mix just deposit costs, mortgage warehouses, our highest spread business. So as that funds up, you can see some margin compression there, but it's 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 the loan growth. So it's still driving positive NII with slight NIM compression. We've been saying for about 3 quarters now. We think a normalized for 2026 is the mid- to low 3 4s, and we're at the mid to high [ 3.40s ], and we're at [ 3.49 ]. So that gives us a lot of room to come in and that full year guidance we've given on them and feel confident on the full year, we will. But to Bryan's point, there's a lot of moving parts right now. But I don't want to disconnect the deposit growth is tied to loan growth, which is positive for NII right now.

What I would say is you can't spend a NIM, which is a ratio. It's been NII, which is dollars.

Your next question comes from Timur Braziler with UBS.

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 on those seasonal campaigns.

Yes. I mentioned this a few times at recent conferences that we've done fireside chats. But the one side, headline rate is not how deposits are working now. One of you on this call actually called branches and put the report out saying this city here's the offers we have gotten to the point in our industry and us as well. Well, we do have different rate specials in different cities. We hear lower end deposits versus higher. Jumbo CDs are back with a much more premium rate.

So unlike 2023, where I can tell you, we were offering [ 525 ] 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. So it is a mix issue of how do you grow with where the market is. The Southeast is a very competitive market. for deposits has continued to have a migration in and additional competitors either grow their footprint or enter, but it's not equal in all states and all cities. And so 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 '22 and '23, not just for us, but as an industry.

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

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

Just like the -- 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 decreasing environment as the loan yield comes down first and then the deposit lag. So 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 year to 3-month to 13-month commitment on something like a jumbo CDs. You've got to let that play through in either a rate increase or a rate decrease. So there is a lag quarter-to-quarter. But over the full year or over a 12-month period, you would expect it to -- we expect it to be matched.

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've described as opposed to the aggregate sensitivity of the balance sheet.

Great. And Bryan, if I can sneak one more in for you. Just would love to get your thoughts on broader M&A and the environment. Are the conversations as that as the deal activity has been more recently? I guess what are you seeing from your seat in terms of books coming across your desk or broader conversations had?

From my perspective, I'm 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 2025 and the relative absence of that in the first half. I don't know whether that is -- what's driving, I suspect it's probably a number of things, including uncertainty about what's happening in credit in the Middle East. But it does feel more benign today than it did, call it, 12 months ago, for sure.

Your next question comes from David Chiaverini with Jefferies.

[indiscernible] on for David Chiaverini. You guys have mentioned in referenced the $100 million plus revenue opportunity 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 you're seeing the strongest client adoption?

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 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 #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 client and relationship at a time. Our teams are very focused on it. They understand where they are in the cycles with 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, 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. So we've traded out some loan growth over the course of the last year.

But on a 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've talked about a couple of times for this year. but we feel very good about our ability to achieve it.

Your next question comes from Christopher Marinac with Brean Capital.

How do you think about the return on tangible common equity as it relates to kind of matching charge-offs with provision or having provisions 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.

Yes. I think I'll 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.

But as I understand, the basic framework of CECL for every loan that's 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 of what happens with the economy, presumably new provision is driven by changes in the economy expected and it's also driven by the new production we put on. So I'm 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 going to be driven with some volatility here and there about what's happening with customers.

But as Tom said, I forgot 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 I recognize that maybe embedded in your question is, well, if you provided another $0.02, your ROTCE would have been closer to 15 as opposed to 15.3 or whatever the math says. But 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 cost 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 ROTCE over time.

Your next question comes from Chris McGratty with KBW.

Great. I just want to go to Slide 16 for just a moment. I like the lower quadrant, right quadrant of what you've accomplished for that $100 million PPNR. I just want to get a clarification. Is the message here that you're roughly 15% to 20% of the way to that $100 million? That's question one. And point two is when do you think you'll get that full $100 million?

Well, when I originally brought 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 is embedded in this and profitability that's been embedded in our forecast or our expectations rather for 2026.

As I said at the time, a year ago, it's probably a 2 to 3 exercise, 2- to 3-year exercise. And I think we're in progress on that. But 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. And we've -- 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. So I think there's a lot of opportunity in our existing book of business.

And Chris, on Slide 16, we say here's a couple of examples. That's not meant to be an inclusive list.

Your next question comes from John Pancari with Evercore.

This is Girard swinging on for John. Just wanted to follow up on credit. It sounds pretty healthy there. On last quarter's call, you mentioned keeping 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're watching? And if not, any other areas to keep an eye on?

Yes. 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 need to continue to monitor because I do believe there is increasing pressure on especially lowering consumers and their spending power.

But all of that said, within the sectors that you mentioned, retail restaurants, things that are closest to the end consumer, it's been surprisingly resilient. And so we'll continue to monitor it. But those do remain elevated in terms of credit risk relative to other industries. And so we'll continue to monitor closely.

Yes, I'm just going to add that you see -- I'm not going to put an alphabet letter on the shape of the economy, but 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. But 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, very low and employment trends have been very, very good.

Understood. And last one for me. Just on the iron comments that you hit on this call. What do you think has been a bigger driver of attracting talent to First Horizon? And have you seen opportunities from M&A in your markets where could create relationship managers getting dislodged or otherwise creating attrition?

Yes. I think clearly, the drivers in our attractiveness as a platform is somehow embedded in our big bank muscle and small bank costal advertising tag. And 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 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 and have the autonomy to look and feel like a very connected and personal relationship team.

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.

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. I hope everyone has a great day.

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

All right. Good morning. We are delighted to have with us today Hope Dmuchowski, Senior Executive Vice President and Chief Financial Officer for First Horizon. Hope, thanks for joining us.

Thanks for having us. Appreciating being the first thing up this morning.

Yes. Pleasure to have you.

So big picture, you've delivered 3 straight quarters of 15% plus adjusted ROTCE. What are the 2 or 3 biggest drivers that you feel are most repeatable through the rest of 2026?

We keep talking about -- it was actually at this conference last year, our CEO brought it up, which is, our focus on getting $100 million of PPNR from our existing portfolio. Last quarter, in our earnings deck, we put some of our early wins and where we're seeing that additional revenue come through, really want to point to our NII. We had 3% loan growth year-over-year, but 6% NII growth on an asset-sensitive balance sheet, which had rate cuts. And what we're really focusing on is that every time we renew a loan, every time that we enter into a new relationship, how can we make sure we're getting paid for the value of the relationship? How do we start with a loan, but then deepen into treasury management, wealth advisory.

So if you look at what we put in our earnings deck, we talked about increasing our NII, our return on our loans. We've talked about deepening our wealth relationship with clients that are already within the First Horizon book as well as treasury management, is how do you get their operating accounts, treasury management, fraud protection, all these things that we've invested in the last few years. We spent 3 years and $100 million reinvesting into our technology, our fraud, our cybersecurity, and now we're able to see the revenue lift from those initiatives and those investments. So I think that's really the thing that we continue to see momentum in.

And in terms of client sentiment, how are clients feeling in your footprint? And are you hearing anything different from consumers versus the commercial side?

Yes. I would say client sentiment has surprisingly stayed very positive. I actually had dinner with one of our lead economists last night, and we were talking about it. The jobs data has been very positive, continuing to be positive. I think the last 6 years has been a continual cycle of what's next, COVID, rising interest rates, tariffs, and so our customers have really gotten used to just working through whatever is coming at them and how do they overcome that.

We don't have a big consumer portfolio. We have a small credit card portfolio. We have resi mortgage, but the lower-end consumer is being hit a lot more, and we just don't have a lot of exposure to that. Also being in the Southeast, which is the fastest-growing markets, outperforming GDP, there is more than enough projects that are getting started and underway and more coming right behind them.

In terms of loan demand, C&I loan demand appears very solid throughout the industry, especially Southeast. Strong pipelines, good growth ex mortgage companies. What's really driving that demand?

Yes. I think as I mentioned a minute ago, it's been a lot of stops and starts the last 6 years in the U.S. economy. I think at this point, the Southeast is continuing to grow. There was a buildup, especially in CRE. There was a delay in projects coming online from COVID. The supply chain issues, the labor shortages at the time. And so we talked a lot about our spring-loaded CRE balance sheet where a lot of supply came on at one time, whether it was Nashville, Atlanta, and that all had to be absorbed. And so we probably had about 18 months there where our CRE portfolio was stabilizing, going on to more long-term balance sheets. We really focus on the construction CRE part of the relationship. And now that we've seen that stabilize, there's the need for the next round of building in the Southeast key markets. And so we're starting to see that pick up.

This quarter, we're really seeing CRE stabilize. We're about flat quarter-over-quarter, and that's the first time we've seen that for 1.5 years. We talked in our last earnings call about the number of CRE originations we've done, and we're really starting to see that come up.

And sticking on the CRE topic, it's been a headwind for loan growth for the industry, but pipelines have been really improving. So what type of commercial real estate opportunities meet your return and risk standards today?

I would say it depends. We run a regional bank model, which is where we have our commercial C&I lenders in the markets, but we also have some national franchises in our specialized lending. Our specialized lending businesses, ABL, equipment finance, even mortgage warehouse, they have a little bit different return profiles as you look at those industries. But what we're really looking at is trying to build a relationship with that client. So when we look at the loan, we look at what is the opportunity to continue to do business with this business, where is this business going, how can we deepen that relationship. And so when we enter into a loan, we think about how are we entering into the relationship and how we get paid on that relationship long term.

One of the things we always say is we don't want to rent our balance sheet to loan only. It's not to say you don't start there. A lot of times, you have to enter the relationship with that, but the next conversation is, "What else can we do for you? How can we help advise you?" I'll give Sophia a shout-out again, our lead economist. She is one of the most requested people at First Horizon, and clients invite them to -- her to their Board meetings, to their client events. And so we're able to bring the whole bank to our clients. We're able to add value to their businesses as a trusted adviser, not just somebody who collects their loan interest and payments.

And so when you deepen the relationship with clients, what are clients telling you right now about their appetite to invest, hire, expand?

Yes. In the Southeast, I would say what we're hearing the most is that they have issues getting the labor, some supply, just longer time lines. And so their interest to invest is really dependent on the ability for them to get their projects underway. Bryan spoke at our last conference. I head up corporate real estate. You'd be amazed how hard it is to build a branch in the Southeast now because you have 2 or 3 that they're bidding on at the same time. I'm sure you're not going to talk to a single bank this week that doesn't talk about building new branches in the Southeast, while there's only a set amount of general contractors there that are capable of doing projects of this size, and we're all competing for them. I think a lot of our clients would like to do more if they could. It's just -- there's so much demand in the Southeast for growth right now.

And are you seeing more competition from new entrants in the Southeast or more from your existing competitors?

A little bit of both. But I would say competition in banking is no harder today than it was a decade ago. It's always a competitive market. There's always good banks. You'll have banks that will focus on one area for a while and then move out or you've had a lot of merger disruption in the Southeast now. But I wouldn't say that we feel any more competition now. Maybe a little bit different.

Private credit is the one we're watching. Obviously, with some of the issues there, we used to compete with them for -- especially in some of our national platforms and looking to see maybe how that plays out, whether they're as competitive as they have been in the past. But as far as traditional banking peers, it's been pretty consistent.

Got it. So then energy prices moving higher. Are you seeing any early changes in borrower behaviors?

Well, we're seeing them use their lines a little bit more, a little bit less cash flow. Obviously, the cost of operating their businesses has gone up. It's hard to find a business that doesn't have an impact of higher fuel prices now that it's persisted for a few months. But our customers are really prepared for this, newest shock to the system. They overcame interest rates. They overcame rising labor costs. And so they're making the right adjustments. And everyone is hopeful that it will come down very quickly and soon, but it's not -- it hasn't been the shock to the system in the U.S. that I think everyone predicted. We were just in Europe last week, and it's amazing to talk to investors over there about what they're seeing in Europe versus what we're seeing in the U.S.

Mortgage warehouse lending, meaningful distinctive business for First Horizon. What does the market most often misunderstand about its risk profile?

Yes. For us, mortgage warehouse on the call reports counts as NDFI for the way it's classified, but it's truly not NDFI. We actually put a slide in last quarter in our earnings deck about our NDFI profile. For us, mortgage warehouse, we hold the notes. So at closing, when the mortgage is delivered, it's actually FedEx to our offices. We hold the note. And then when it's pledged to Fannie, Freddie, we're the one who sends the note out. So really, it's not a credit risk. It can't be double-pledged like some of these frauds you've seen. It's an operational risk. And we disclosed that we've had 1 basis point on average of losses in that portfolio, and that's operational risk. That means that something has happened with the business we were lending to, and then we have to go through the process of getting rid of those loans, and there's some costs in it. But it's a very labor-intensive process for how we do it, but it prevents the losses and frauds that others have seen.

I think the biggest issue in our industry is, people do mortgage warehouse differently. Some do not hold the notes. They have an intermediary. They have a risk-sharing profile. We don't. So for us, the mortgages that's on our balance sheet for a client and the mortgage warehouse note, they sit in the same place.

All right. Let's turn to deposits. It's a key topic at our conference this year. And on deposit pricing, you've highlighted strong cost control post the last Fed cut. What's really the playbook for what's working, product mix, segmentation? Is it relationship pricing discipline?

Yes. I brought our Chief Marketing and Client Experience Officer on the road this time, so we keep getting asked about deposits. I thought it would be great for her to spend 2 days with investors hearing how the investor community thinks about it. This time of year is always the most competitive. We were just looking at the number of offers that are out in the Southeast. We were looking at it when you look back the last 2 years. This tends to be the most competitive time every year where people start shopping their money, they're willing to open a new savings account, they're willing to move their wealth relationships. And so there's no shortage of offers. Whether you go online or you open your mailbox or inbox, I'm sure everybody has multiple offers to move money.

The interesting thing about deposits is I always -- I own pricing for deposits and I'll get, "Well, so and so has this rate." And I say, "Can you send me the flyer? What's the minimum? Is there a fee?" How long -- it's not as easy to see -- compare the offers one-to-one. So it is -- we're not seeing the success that we saw in 2023 with moving money as quickly top of market because everyone is kind of competing in the same range. Quarter-over-quarter, I mentioned this on our last earnings call, we're up low single digits in deposit costs. There's 2 components to that. Mortgage warehouse seasonally funds up in Q2. It hasn't been as strong as we would have hoped due to what's been happening in the mortgage market. There's not much refi right now. So that always drives our deposit costs up as we match fund that with wholesale.

And then new-to-bank is getting more expensive to bring in. We have a guarantee 90 days, 6-month CDs, 9-month CDs. And then when that rate special runs off, you'll start to see us walk back our prices. If you look at the last 2 years, it's been a similar rate cut pattern in the Q4. We've been able to get the most beta decrease then, then you start to give some of it back in the spring and summer months, and then we'll walk it back again.

But deposits are competitive. They're going to continue to be competitive. Watching AI, how does that change, how people shop, how they move their deposit, it's a continually evolving environment.

So tick up in second quarter in line with prior comments that you've given. And you mentioned seasonal is a big part of that. How much is seasonal versus structural? And how confident are you in keeping deposit costs manageable?

Yes. I'm very confident that we can keep deposit costs manageable. I think the question is, I was just looking at the forward curve, is the next move up, down? If we have a rate increase, the back-book is going to reprice. One of the things being asset sensitive, 59% of our book, they benefit from falling rates on the loan side, so when we call them about their deposit. It's an easier sell for somebody whose loan just went down 25 basis points to talk about their savings going down the same or their operating accounts. On the flip side, when the rate goes up on the loan side, they're expecting their deposits to try to offset some of that spread as well.

So at this point, I don't know whether I'd bet on a cut, decrease or flat for the rest of the year, but it seems to move pretty consistently. And I'm sure by the end of the day, it will move at least once in a different direction today. So I think our ability to manage deposit costs, I feel very confident. The question is, which direction is rates going, because that will drive the cost up or down. Whenever we see a rate cut, it is the best time with our consumers to start talking about bringing rates down. It's fresh in their mind. They're seeing it in the news. Some of them see it on their loan side. So the ability to decrease it then is very important.

And any change in the take on rate from customers that you're seeing?

No, I'd say it's early in the deposit competition season, but I would say maybe in line, a little slower than last year, but not like we saw in 2023. We were able to raise $6 billion of deposits in 30 days with a top of market rate. Customers have gotten used to moving their money. They have multiple accounts open. It's just a different environment. So it's much harder to get the lift no matter what your rate is.

Excellent. So what about broker deposits? How do you think about them? Are they more of a tactical tool or something that you'll deemphasize going forward?

Yes. Brokered deposits the way we start with the principle of we use broker deposits to match fund mortgage warehouse. We have had about $4 billion -- $3 billion to $4 billion on our balance sheet and wholesale funding, brokered deposits have been a big part of that. It allows us to manage our NII up and down. So if you look at the last 2 years, we've seen brokered deposits go up in Q2 and Q3 as mortgage warehouse is funded up, and then we're able to pay those down when the balances come back down so that we can really see the immediate impact to margin.

The unique thing about mortgage warehouse is the individual notes stay on our balance sheet between 19 and 21 days. So it's a really short duration. So we really think about mortgage warehouse and broker deposits kind of in the same range.

Right. So we talked about deposits. Before, we talked about loans. Together, you've been managing NIM well in the first quarter despite some lower variable loan yields. So how should we think about NII trending from here with some deposit cost pressure, but also some asset repricing tailwinds? And do you expect the repricing to help offset pressure from variable yields?

Well, I sure hope it will. That's our goal. As we mentioned earlier, we're really proud of the fact that we grew loans 3% and NII 6% year-over-year. That continues to be our focus, is how do we get more out of the portfolio, how do we continue to use repricing and opportunity to get in front of a client to drive a higher return on equity for our shareholders? We've been able to -- because of the health of the Southeast market, we have been able to continue to grow loans and grow them at a more profitable spread than some of the stuff that's running off from the COVID years or early 2020s.

All right. We touched on competition a little bit in the beginning, but I wanted to dig in a bit there. So you've noted that the market is competitive. Where are you seeing competition intensify the most in terms of -- is it pricing, structure, underwriting standards?

Everything, in all honesty. I think it's consistent. Some of it's structure, some of it's pricing, some of it's terms. I think there's a lot of different philosophies out there, high-growth portfolios versus moderate growth. We think mid-single digits for loan growth this year, we believe that's where we'll end up. So we're choosing which loans to make that fit our profile versus high, high growth. The market -- the banking industry continues to evolve, and that can change quarter-to-quarter or month-to-month. But it's been pretty consistent year-over-year.

And what about within your footprint? Any areas that are getting more competitive? Is Nashville more competitive than the rest?

Yes. I think all of the fastest-growing cities have been competitive for years and continue to be more and more competitive. My 20 years in banking, I've said this before at some of these conferences, Miami has never not gotten competitive. You keep thinking there's no one else that can move to Miami. There's no space for them to build, and yet Miami became more expensive to live in than New York this year. So there are certain markets that were always competitive and continue to get more competitive. Nashville is one of those in the last decade.

Miami -- Charlotte has become -- the Carolinas in general have become extremely competitive in banking. But there's a growing population there. So you're not fighting for a shrinking pool, you're fighting for a pool of -- there's more jobs moving to these cities, there's more people, more retirees. And so you're fighting for a larger pool, which allows us all to grow our balance sheet.

And for you, this is where owning the relationship becomes very important.

It does. We talk a lot about our 5 flags framework that we ran out, which is where can we bring value to the client. The client is -- we had a banker say the other day, he was doing a training session, "If your client is asking for 10 term sheets, they're probably not the client we want because they're just chasing the best structure, the best rate, and we can't add value to that relationship." And so absolutely. I also -- being headquartered in the Southeast for 162 years, we've talked a lot about that in our branding campaign.

We're not new to the South. We started in Memphis. We've been headquartered here within 2 blocks the whole time. So we know the Southeast. We've grown with these clients. We have clients that we're on third generation of CEOs, owners, and we've been with them for 100 years, and they've been with us for 100 years. So it does matter that we know this market and our structure, our products, how we go to market is geared towards the Southeast and has been for over 100 years.

Let's turn to fees. So in terms of fees, what areas are you most optimistic about for 2026? And any headwinds?

Most optimistic, I would say, as we talked about in Q1, we've seen good momentum in wealth. We got through an LPL conversion third quarter of last year. We're able to offer additional products, a better platform to our clients. We've been hiring wealth advisers. We've seen some really good early wins with that conversion and partnership. Treasury management, we put that in our deck as one of our $100 million PPNRs. We're continuing to deepen relationships because you can have a treasury management operating accounts, but then you can do a P-card, accounts payable, accounts receivable. It's not just about getting the accounts, how do you keep deepening that account and that relationship with the client, how do you bring more value through our treasury management platform and our treasury management advisers?

FHN Financial, our bond business has had an unusual quarter, which is, it's a start and stop. So we've seen ADRs in the high 500s there, but it really is a week of almost nothing and then a week that kind of makes up for it. So the average is a little bit deceiving to what we're seeing. Every Monday morning, Bryan and I and the executive team get ADRs for FHN Financial in our inbox. And I open it, and I've usually gotten a little bit of a gut feel for the week before, but there's no telling what it will be week-to-week with the way the forward curve has moved, the way the 10-year has moved up. So a little bit less optimistic about that in the near term, but know that there's demand in the system, it's just a matter of when it comes back.

So a lot of fee income businesses at First Horizon, and you've identified $100 million plus revenue-driven PPNR opportunity from cross-sell. As you look at the different fee income streams, wealth, treasury management, specialty lending, maybe something else, what's really driving the biggest piece of that opportunity?

It's really equal. And that's why we're able to get so much of it, continue to get so much of it. It's not being -- the $100 million is not just all on our commercial bankers on the loan side or all on the deposit side of the wealth. It really is the opportunity for every one of our businesses to get a little bit more out of their relationships. So it's not one big bet, which is why we're so confident in it. This time last year, we said $100 million plus. In January, we said we're going to reset that $100 million. It's $100 million even from the run rate we're at at the end of last year. We're probably going to get about 40% of that in the run rate by Q4, which will carry forward. So a lot of our growth story and increasing our ROTCE is getting more profitable and getting more out of every relationship.

So when you make a new C&I loan or you make a new commercial real estate loan, what does it really take to capture that full relationship? And how difficult is it?

I'll start with it's very important that their first meetings with us, getting that loan done is done well. They like their banker. They feel their banker is a partner that's there to understand their business, to help drive value in their business. And we really focus on the whole bank. Our CEO will get on a plane to talk to a good prospect and have dinner with them. Our Chief Credit Officer and myself were on a prospecting call just last week, the day before they said, "Listen, we have this great client. We're about to close. We're in between the 2." They've asked if they can meet with you or Tom. And Tom and I said, we will both be there. Here's the time we can both make work.

And so really upfront showing them how they have access to our whole bank, how we will be there as a partner, that first few interactions until we get the loan done is so important. How do you -- if you start talking about treasury management, we will bring that to the table during the discussion so that every meeting with them really feels like the entire bank is here to support you and your company's success.

Any updates on FHN Financial fixed income trading business for the quarter? And any other updates for the quarter?

I mentioned a little earlier when we were talking about fee income, ADR right now is trending in the high 500s for the quarter, which is significantly down from Q1. And we'll see how the next few weeks play out. But at this point, I think it will be in the high 500s for ADR.

Anything else for the quarter or -- how is that?

We've talked about this a lot, and you and I were talking about this earlier, we give our guidance -- our revenue guidance, we don't break out NII and fee income. FHN Financial is a little lower than we thought it would be, but we didn't have a rate cut like we originally thought in the year. So NII is staying higher, we're seeing strong loan growth Q1 to Q2 that's offsetting that. So whether it comes from FHN Financial bouncing back, higher loan growth, increasing our NII with our existing clients, we're confident that we're going to hit our revenue guidance this year.

What about expenses? So where are you seeing the biggest productivity gains? Is it from operations, servicing, onboarding, fraud, compliance? And any update on the expense side?

We still intend to hit our full year expense guide, just like we do our revenue guide. And I'll add in there in case we don't get to it, we expect to be within line with our credit outlook as well when it comes to charge-offs. We feel really confident with the guidance we laid out in January and that we're going to be well within that this year.

On the expense side, AI has -- you can't get through a day or a meeting without talking about AI. Every technology project we have, every enhancement we have, "Can AI do this quicker?" I have a group of interns. Tyler, IR Director, is actually running the intern pool for us, and we have them running some AI projects and trying to figure out what they've learned in college that they can teach us. But AI is becoming more and more expensive. Our tokens, how do you manage those, who do you give licenses to? I think early on, there was a lot of expectation that AI was going to take all these costs out of the system, and it was just going to fall in the bottom line. There is a cost to running AI. We're having to set up AI governance. I would say AI is definitely increasing the pace of things, like how quickly we can do development with some of the tools, how we can do peer analysis during earnings within IR? We're seeing small gains like that, but there is a huge investment back into AI. And I think that's here to stay.

Fraud. Fraud is one that we're continuing to stay ahead of. And you can see that as it relates to the industry, there's a lot of focus on the end consumer getting that fraud loss, seeing the impact of that, how do -- we're using AI to look at trends, where are we seeing things happening that might be a fraud scam, where are we seeing consistent -- one of the big ones that we're seeing in the industry now is it's the clients' e-mails that are being overtaken. And so they're getting access to their user names, passwords. We're having to build dual authentication and callback more so than we used to.

And so the human in the loop is, in a lot of ways, becoming more important with our clients so we can make sure, especially for our commercial and treasury management clients, when we see unusual wires being made, that they've authorized them. So I do think AI is most -- the biggest impact we're seeing immediately is fraud. Our fraud losses are pretty similar year-over-year, but the cost to manage fraud, the investments we're making into the tools and the people, have significantly gone up.

Expenses, we're not immune to the cost of rising fuel prices. It's more expensive to get on a plane. I can't believe how much it costs to me to get to this conference this year versus a year ago. And so we are looking at where do you also have to scale back our costs. The cost of utilities are going up. And so balancing that. Bryan and I always talk about levers, and we see expense as a factor of revenue, how much is revenue going to go up, what's the expense offset that we can have positive operating leverage and where do we want to invest that. We do have -- we're hiring new bankers this year. We are building approximately 10 branches or in different stages of construction. We're still investing in technology and AI. So we're investing back in the company at the rate we're able to offset as we find savings internally.

Well, thank you for flying to our conference. We appreciate that and always love having you here.

My Chief Economist last night asked me how busy our flight was. Are they full? Are they unfull? She said she was doing her own little survey to see what the skies look like. Mine was completely full. We were out of seats, but our IR Director coming from Raleigh said he had some open seats. So I don't know, I don't know if we helped her very much at dinner try to get ahead of the data gaps.

All right. Let's turn back to AI. So you mentioned there's a cost to AI. It also can free up some efficiencies. So how do you view it on a net basis? Is it net cost savings? Is it net revenue enablement, net cost?

Well, the goal will be for it to be net neutral to cost, if not net positive. I mean we really focus on how we invest to get savings out of the company and reinvest. But on the revenue side, it absolutely is revenue enabling. Can you do underwriting packages quicker? Can you get the loan -- the quicker you can get a loan closed and on your books, if you can do it 15, 30 days earlier, that's more revenue you're getting. Also a lot -- I mentioned earlier, I have a Chief Marketing and Client Experience Officer here. She tells me all the time about how we're doing AI for next best action, how do you prospect differently?

I remember -- I'm a little bit older than you, by a fair amount. But I remember when you used to get Excel files of leads list and you'd have analysts looking through them and say, "No, you don't want that one." Now nobody looks through marketing leads list anymore. When we do a deposit campaign, there is a tool that's built. Aaron's team can do a great job saying, okay, now we want this type of client, or we want these types of markets, let's tie this to where we're seeing the markets grow. And that is an enablement. The ability of success that we can have in a direct-to-client marketing campaign for CDs, money markets, mortgages is significantly higher because of the quality that AI can run for those lead tables.

Let's shift gears a little bit to credit. So theme at our conference so far has been that credit looks pretty fine. Are you in agreement with that statement? And what leading indicators are you really watching most closely today?

Yes. Our credit has held up really well throughout the last 5 to 6 years. We have one of the lowest charge-offs in the industry with one of the highest margins. It's something we're very proud of. It really goes back to that relationship banking, know your client. In our regional bank, our bankers sit in the markets. They know what's happening in the market. They understand if they build a hotel on this side of town or an apartment building on this side of town, what it means because it's where they live. And there's a lot of value in the human in the loop as you're making those credit decisions. A model can't tell you everything. Models really work backwards much more than forward. So as we think about credit, we think about the relationship and lending to that person and that business and making sure that they can be successful through any set of economic conditions.

So we feel really strongly about our credit. It is holding up very well this year. You always have some losses. But as far as leading indicators, we are watching the consumer. We do have a franchise finance business that does quick-serve. We do have some exposure to the medical industry, looking at how some of these medical changes have worked. But I think it's been 5 years of the industry being surprised as we've stressed the consumer how well credit holds up across the industry. Whether it's mortgages, C&I or CRE, we're really seeing a lot of discipline in the banking industry that I think has led to much better charge-offs than the industry was expecting coming out of the early 2000s and what we saw there. I think it's a much better overall credit underwriting today, more equities and deals, better structures than there was a decade or so ago, and we're really seeing that play out through our system.

On the capital side, First Horizon is targeting 10.5% CET1 target. So how do you think about the trade-off between flexibility, buybacks and growth capacity?

Yes. We start with safety and soundness. So we set that target annually. We give it in our guidance, but we also look at it with our Board every single quarter. We still submit a stress test, even though we're not required to at our size, that we can get comfortable with what would happen in a scenario. We rerun that. We published it. We publish it every summer. So if anybody wants to look at a stress test, you're more than welcome to see what we publish later this summer. But we start with that, which is what is the target we need to feel that we are -- we have safety and soundness throughout a set of economic conditions.

And then second, we go to loan growth. We want to keep capital for loan growth. That is our key way to deploy. It is how do we build a relationship, how do we continue to grow value for shareholders. And then third, we buy back shares. We are in the market for share buybacks this quarter. We bought approximately $80 million so far, and we'll continue to look at what we think our earnings will be, targeting that 10.5%. But we have good loan growth this quarter, quarter-over-quarter. We've kept the C&I momentum generally pretty flattish on CRE for the first time and approximately $80 million of share buybacks.

Would any potential capital relief from regulation and definition of standardized RWA change the pace of capital deployment even if the philosophy stays the same?

Absolutely. We're all well capitalized right now. We're well above our minimums. But if the minimums change, the goal with trying to bring capital back in line is to be able to lend more. So it would still be the same goal, which is how can we create more lending, how do we help our communities grow, how do we create jobs in our local communities and in the national businesses we're a part of? So it will absolutely be a help to the entire industry. And hopefully, the goal is to stimulate some more loan growth across the U.S. markets.

And what about upcoming tailoring and threshold changes? Does the evolving regulatory framework around $100 billion threshold influence how banks of your size think about M&A or organic growth?

It definitely changes how we think about organic growth. Previously, we did have a 3-year plan that we were working through with our Board on getting ready for $100 billion or LFI. For a little while, it was we had to show the regulators we were prepared to cross $100 billion before you could cross it. That has changed a little bit. But we are definitely one of those banks that are watching closely if that line moves up and will benefit significantly if they do move it up with kind of indexing it to inflation or GDP or something. So right now, we're closely watching and very hopeful that, that $100 billion will move up, which will allow us to do organic.

On the M&A side, we've been saying the same thing. We have a great franchise that we believe has a ton of organic growth within our current portfolio as well as abilities to grow in the fastest-growing economies in the U.S., and that is our #1 priority. M&A as a buyer or acquirer will be opportunistic, but it's not our focus. It's not our priority. Our priority is continuing to focus on growing our franchise and the value of our franchise.

And you've talked before in prior interviews about the importance of scale. And I'm wondering, with the AI conversation that we had earlier, does AI change the meaning of need for scale to you? Does it maybe make scale less important? Or does it make scale more important?

I think we're still trying to figure that out, but we're on the side of it probably makes it easier to compete. When you can build code that used to take you 3 months in a week or 2 with Cursor and some of these other applications, you can keep up with less investment. Software as a Service, I think, had already started to kind of neutralize that impact. Most banks use an Oracle GL or Salesforce. If you look at the number of banks on some of the core systems, we're all using the same provider. We have the same software.

I think the bigger thing when we talk about scale is the change in the regulatory environment. It not costing some of the rules that they were proposing that would come down to $100 billion banks made it unscalable in a lot of ways to compete if you had the same cost of operating a bank. So I do think tailoring back on the table, really structuring the Cat Is through IVs differently allows the ecosystem to continue to grow organically.

We're almost out of time. So one more question just to wrap up. If you were to look maybe 3 years out, what are the few things you would want investors, clients and employees to really say First Horizon became better at during the current period?

Well, first and foremost, it's ROTCE. You started with our 15% plus. I will not get away from today, probably even the first meeting with investors and some of the people in the room here, "When are you going to raise that goal?" We've raised it twice in 3 years, since we had an Investor Day just about 3 years ago this week. And we've said we were going to get to 15%, and then it became 15% sustainable, then it became 15% plus. So we're really focused on returning that value to shareholders, getting to that top-tier ROTCE.

And in the Southeast, we want to be the premier lender of choice for regional banks, right? As a regional bank, we have a different value proposition to our clients than bigger banks. We run a decentralized model where our credit analysts, our regional presidents, our commercial bankers, they sit in the markets they work in. We have a Regional President over the Carolinas. She's traveling to see all the clients there of her team. And so we really want to focus on that relationship-driven Southeast aspect as we continue to grow our franchise.

We're hitting 162 years, and we hope in 100 years, they're saying the same thing that we're saying now, which is we continue to grow the franchise profitably while investing back in our local communities.

Excellent. With that, we're out of time. Hope, thank you so much for your time.

Thank you. Thanks for having us.

Hello, everyone, and thank you for joining the First Horizon First Quarter 2026 Earnings Conference Call. My name is Lucy, and I'll be coordinating the call today.

[Operator Instructions]

It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations, to begin. Please go ahead.

Thank you, Lucy. Good morning. Welcome to our First 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 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's 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, and you should understand that we are not obligated to update them.

And with that, I'll hand it over to Bryan.

Thanks, Tyler. 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're 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'll now turn the call over to Hope to walk through our first quarter results. I'll provide some closing comments at the end of the call. Hope?

Thank you, Bryan. 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 evident in our results this quarter, which includes a return on average assets of 1.30%, up 19 basis points from 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 the first quarter of 2025. Excluding loans to mortgage companies, our C&I portfolio grew $624 million in the quarter compared to having approximately flat growth in the first quarter of 2025. Our performance also includes 8% improvement in adjusted pre-provision net revenue compared to the first quarter of 2025. Our adjusted ROTCE of 15.1% increased over 200 basis points year-over-year.

Starting on Slide 7, 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 8, we cover details around our deposit performance in the quarter. Period-end balances decreased by $1 billion compared to 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 9, we cover our quarterly loan growth. Period-end loans increased slightly by $221 million from the prior quarter. This quarter's results, which include an impressive start to the year for our core C&I business, which saw $624 million in loan balance growth. This builds a momentum we saw in the second half of 2025 and 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 moved to permanent markets and non-pass loan resolutions reduced 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-100s to upper 200 basis points.

Turning to Slide 10. We detailed 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 comes from our service charges and fee lines, which was driven by the impact of day count and normal seasonality in other service charges like treasury management fees, interchange income and 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 $742,000, 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 prior quarter. Personnel expenses, excluding deferred comp, 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 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, which includes buybacks of $766 million during that period and an increase to our dividend.

I'll 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 continue 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 target.

And with that, I'll turn it back over to Bryan.

Thank you, Hope. On the whole, we feel very good about how we started the year. We're 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've been in years.

We manage our business with 3 priorities: safety and soundness, profitability and growth, which is evident in our results again this quarter. We're not playing solitaire. 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 quarters. We deliver big bank capabilities with a 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'll stay thoughtful on capital management, and we'll 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 1 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.

Lucy, with that, we can now open it up for questions.

[Operator Instructions] The first question today is from Jon Arfstrom of RBC Capital Markets.

Bryan, a question for you. You touched on some of this, but you seem a little more optimistic on the lending environment. And wondering if you could touch a little bit more on the pipelines in C&I and whether or not you've seen any impact on pipelines from the macro uncertainty?

Yes, happy to, Jon. The pipelines and 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. And in fact, we still see what is a continuation of what we saw building in '25, which is business owners and leaders looking to grow, invest and build. And so that has been positive.

In addition, I mentioned and I think Hope did as well that CRE pipelines have continued to build. And as you know, that's a business for us that loans originate and fund up over a 3-, 4-, 5-year period and then pay off all at once. And we haven't seen pipelines this strong since the '22 -- '21, '22 time frame when rates were essentially 0. So those pipelines are building.

So we're very optimistic about the outlook for lending growth over the course of this year. You will see in our results, and it's 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've repositioned the business to align around our consolidated strategy. And with that, we're seeing an improvement in the profitability of the lending that we're doing. We're focused very much on relationship lending, things that are not relationship-oriented, we're being very disciplined about. And 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 for those, and our bankers are doing a very nice job of not only getting our fair share, but maybe a little bit more.

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

Thanks, Jon. I will say we do expect to see a seasonal increase in Q2. We're already starting to see some of that fund up at the end of March and the beginning of April. Now whether it's typical, I can't say what typical is anymore. Last 2 years, Jon, have been some of the lowest mortgage origination years in the last 20 years. And I think the way rates have been going in the first part of the year, we're probably going to see a low mortgage origination and a low refinance rate, but do expect that it will trend consistently with Q1 to Q2 and Q3 of the last 2 years.

We have picked up market share and that has shown and continue to show in our strong loans to mortgage company balances even at the end of Q4 and Q1. I've said before, I think one of the biggest upsides to our guidance is if we saw a refi wave, I think it gets less likely to further that 30-year rate goes up, but that is the back half of the year, I think there's still a possibility for us, although that's not built into our outlook today.

The next question comes from Michael Rose of Raymond James.

Maybe I'll just take the other side of the balance sheet from Jon. Just on deposit competition. I noticed that the interest-bearing spot rate was 2.27% versus the full quarter average of 2.28%. Can you just talk to us about deposit competition? It seems like anecdotally over the past month, it's definitely increased. So I just wanted to get your kind of light of the land and then what we can expect in terms of what you've modeled for rate scenarios for the year? And what is kind of 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, people brought in, our competitors brought in their terms and their rate guarantee. We're starting to see that shift to longer guarantees and higher rates for longer in competition. And so we -- as you saw, our spot rate is still below our average and we're generally there. I do think that deposit costs will slightly trend up in Q2 and Q3 if we don't 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's the time that consumers start thinking about moving their checking accounts, savings accounts, they've gotten tax refunds. And so I do think with that new-to-bank-promotion out there, we'll see a little bit of uptake and then we'll walk it back just like we have the last 2 years. [indiscernible]

Perfect. Really appreciate that. And then obviously, there's a lot of focus just separately on private credit and things like that. I appreciate some of the color that was in the deck. It looks like generally credit appears to be good.

So maybe for Tom, anything you're seeing on the credit front? And then I noticed that you guys didn't put any commentary on criticized and classified this quarter. Just any sort of updates there?

Michael, happy to address those. Overall, I remain pleased with our very consistent credit performance headlined by the 18 basis points net charge-offs, which is slightly below the median of the range. That said, there's always things that we want to watch carefully. I would say for me, in particular, I'm still carefully watching anything that is most closely tied to consumer discretionary spending, especially with recent increases in energy prices, that's certainly a [indiscernible] discretionary spending. So those sectors like trucking, auto, restaurants, those are things that I want to watch more closely.

But to your comment on private credit, that is something that we're certainly monitoring as well. But I would point out, we have a very minimal exposure to that segment. In terms of direct exposure to private credit, it's less than 1% of our loan book. And substantially all of that is backed by the end collateral is either tangible assets like real estate inventory or equipment or accounts receivable and there's very, very little enterprise value lending exposure.

The next question comes from Jared Shaw of Barclays.

I think if we could look at the $100 million of that sort of incremental PPNR, what are any of the assumptions behind that for cost savings and/or potentially slower hiring driven by AI implementation? And if there's nothing including there, is that -- yes, I would say, I was just going to say if there's not a thing in there, is AI a positive or negative to that $100 million?

Yes. Jared, 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. So you can see the profitability of the existing relationships at renewal or new-to-bank getting additionally creating more value for us. So there are no expenses.

As far as AI, we do have a flat expense outlook excluding countercyclical commissions. We've said that, that is coming from the technology investments we've made over the years, and we continue to make sure that we can scale revenue without having to scale the back office. So less about cost saves right now in our outlook and more about able to scale with bankers, invest in new hires, grow our market share without having to add all of that support infrastructure.

Great. And then on the capital side, I guess, what would cause you to lower that 10.5% target? You did some work on the capital stack this quarter. I guess what could cause you to feel comfortable with lower than 10.5%?

Yes, I'll take that. I think right now, we're comfortable with the 10.5%. As I've said in the past, this is something that we've talked with our Board continuously about, and we will continue to do that. I think given the near-term uncertainty about what's happening with respect to oil prices and what that means to inflation in the economy, it's probably not a bad idea to see a few more cards here.

Overall, we're very optimistic that the economy is still in a pretty good place that over the next several weeks to months, we'll start to see some of this uncertainty settle down. And I think at that point, we'll continue to evaluate whether we bring those ratios down.

As we have said, we have a bias where we believe that we can operate the organization on a lower CET1 ratio, a lower CET1 ratio than the 10.5%. And over time, we will get there.

The next question comes from Casey Haire of Autonomous.

Yes. Great. I wanted to revisit the NII outlook. Hope, you mentioned that deposit costs were going to -- is going to feel some pressure going forward. I was wondering if you could shed some light on loan yields and bond yields given the fixed rate asset repricing benefits. And just overall, what does that do for NIM?

Thanks for the question, Casey. On the deposit side, what I said is it was a slight tick up. I don't expect that to put a ton of pressure on NIM or NII, it's really the mix as you bring new-to-bank in. And so I see that in the low to mid-single digits, and that's manageable for us in our current outlook.

As far as on prices and the outlook there, it's really hard to predict what's going to happen. As Bryan mentioned earlier in his comments, 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 couldn't change going into the back half of the year. But we do see some risk there, but we don't see any risk to our outlook of our guidance on all revenues. So NII would come down with rate cuts, so we saw some stability, we'd see FHN Financial pickup, maybe some additional refi. And so we feel that we are really balanced in the back half of the year to hit that revenue guide.

Got you. Okay.

I was trying to -- Casey, I'm sorry. This is Bryan. I'm trying to pull up. You asked about fixed asset repricing. I think we have something like of $1 billion or so of investment securities, a little more than that, the reprices over the course of this year. And on the fixed rate loan, whether it's a long-term arm or et cetera, it's a little over $5 billion that reprices in 2026. So in total, we've got about $6 billion to $7 billion of assets that we repriced principally at higher rates.

Yes. No, I see on the slide deck on Slide 7. I was just wondering if the asset yields could offset some of the modest deposit pressure that you guys are feeling to keep the NIM stable?

Well, I think clearly, the fixed asset repricing will have -- fixed rate asset repricing will have some impact. But Hope alluded to it a couple of different ways. We're working very profitable -- to improve the profitability of the balance sheet. And so there is some offset there as well. And we've talked in the past, for example, our market investor CRE, we've improved the yield significantly in that business on a year-over-year basis.

So we think we have lots of levers that allow us to continue to navigate through the sort of deposit trends that are occurring in the market in the near term. And as Hope has said, we feel very good about the balance and the balance sheet over the long term that we can navigate changing interest rate environment with as much or more stability than most.

Great. Just one more on the credit side of things. So the ACL ratio has come down nicely. We got some mix shift and some credit resolution. I know it's difficult with the CECL modeling, but all else equal, like what is a good landing spot for the ACL ratio versus that 1.28% level?

Yes. It's hard to say because, obviously, things have evolved on a quarter-to-quarter basis and depending on what happens with loan growth, depending on what happens with grade migration and classified resolutions, all of that can change the result quarter-to-quarter. But we feel like we're very adequately reserved at this current time at our current ACL that's approximately 7x our average net charge-offs over the last 2 years. And so I believe where we're currently at is a very well-reserved position relative to our very steady net charge-off performance.

Great. To add to that, I've said this in prior quarters, 2 or 3 basis points in the CECL model is not material. I mean we've got up -- if you look at the last 6 quarters we've gone down 3, 1 quarter up 2, I mean, that's really essentially flat in a coverage with a portfolio that moves as much as ours does.

The next question comes from Bernard Von Gizycki of Deutsche Bank.

On the $100 million plus PPNR opportunity, you highlighted some progress made since mid-2025 on Slide 15 of the deck. Could you just walk us through these examples on the CRE pricing, the deeper relationships between regional and specialty, the trading management and wealth management initiatives?

Absolutely. I'll start with that is in no way a holistic list of all the things. But as we keep getting asked, what are some proof points that you can show us, what can you point to, we put a couple on Slide 15. But CRE pricing is one that Bryan has talked a lot about as we've been speaking with investors at conferences, which is the benefit of having a specialty model and a market-centric model. We have a strong pro-CRE business that is long-tenured bankers and are continuing focusing on exactly what's happening in the CRE industry across the country, by sector, by subsector.

And about 1.5 years ago, we brought that specialty to every deal with a market -- end market banker who is doing a CRE deal. And we've been able to see additional fee income come out of that partnership where they were able to get origination fees or unused line fees as well as increased margins as the appetite for CRE in our industry really shrunk over the last 3 years, so those spreads increase.

It's really the benefit of a market-centric model with a specialty partnership. You're bringing the best of both to the client. And we've got -- in addition to the financial benefits, we continue to hear from our clients how much they appreciate that having somebody who can talk to exactly what's happening in the industry alongside a banker that knows exactly what's happening in the market. It's been a great enhancement for us, and we have that in a lot of places. We've highlighted CRE. But we have it in franchise finance, ABL, equipment finance, just that partnership is really paying additional dividends for us and is a big part of our $100 million PPNR opportunity that we're already realizing.

This is something that we have built into our expectations for 2026. And it's really hard to highlight how much work goes into this. We have hundreds, thousands of bankers that are working on aspects of this every day. And it really comes from the ability that our teams have created for the organization to see with a lot of granularity, relationships and understanding the nature of relationships, interconnectedness of deposit or fee-based services and lending relationships. And those tools have helped us navigate opportunities for bringing new products and capabilities to customer relationships, making sure where we've underpriced the spread here or there that we're asking for appropriate spread on the credit or the treasury service or the wealth management or whatever it happens to be.

It's something that is a work in progress. It's not completed. In '25 or '26, it will continue. But it's part of the discipline that we believe that the organization is oriented around, which is building long, deep, broad long-term relationships and creating win-win solutions for our customers that essentially create partnerships that are, as I said, win-win for both sides.

Great. Just a follow-up on loan growth. Obviously, you reiterated the expectations for the mid-single-digit growth. But just wondering, are contributors changing maybe stronger C&I than originally expected, maybe a bit less CRE? You noted the headwinds, but pipelines remain strong. Just thoughts on if CRE will still be a positive contributor for loan growth this year?

Yes. I'm happy to tackle that one. I'll start on the C&I side where you saw a very strong continued momentum in Q1. I think what I'm most pleased about in those results is how evenly spread that is between both our regional bank regions as well as our specialty lines of businesses. We saw momentum on both sides.

On the CRE side, we've talked about the headwinds in terms of project starts over the last several years going into the [ perm ] market. We started to really see that pace of our payoffs decelerate. And we believe with a very, very strong pipeline, especially now compared to a year ago, we should start to see some very good net growth on the CRE side later this year as well. So overall, there's very good momentum down the balance sheet.

The next question comes from Chris McGratty of KBW.

This is Andrew Leischner on for Chris McGratty. I know you've touched on it a little bit earlier on -- I know you touched on it a little bit on Casey's question earlier, but just on the 3% to 7% revenue guide, can you maybe walk us through the scenarios or assumptions that would get us to the higher end or lower end of that range?

As I said, I think we're pretty balanced. The question is not how do we get to the higher or lower end of the range, it's does it come from fee income and countercyclical, or does it come from NII and higher loan growth. What I have mentioned is to get to the high end or exceed, not to say it's there only, but it's really -- we have no pickup in mortgage or refi built into this outlook. As I said earlier, I don't expect it in the near term as 30-year rates keep moving up and there's uncertainty of the consumer, but that's the one item not built in here. But we're starting the year with 3% loan growth year-over-year and 6.5% revenue growth year-over-year. So we have a strong start to that momentum.

I think the other driver is likely to be an acceleration of economic growth. And to the extent that we look at the economy today, we feel like we're in a pretty good place. The economy is growing pretty steadily. But it's probably in that 2.5% to 3% area. And I would say, given what we know today, there's probably greater downside risk than there is upside opportunity. If that gets resolved and the pace of growth and the economy picks up, loan growth will naturally pick up, and we could get to the higher end of that range. So it's really going to be a combination of how interest rates play out in connection with some of our businesses and then more importantly, what does that mean in terms of economic growth in the economy overall.

Great. And just on the expense outlook, annualizing this quarter gets you a little lower than flat expenses. So outside of the lower marketing in the quarter, is this a good run rate from here? Or were there some other items that were lower than usual? I know you completed that technology project referenced in the release, but any color here would be great.

Yes. There'll be some movement throughout the quarter as it relates to marketing spend. We always have an issue with the way we do our income statement, where marketing spend hits first and then the cash offer hits another. And you'll see some volatility there. But the other one is technology projects. They can vary quarter-to-quarter at the end of the year. We had a lot of project complete, and they went from the expense part of their project to capitalization, which is more stable. But I do think, to your point, it's a good glide path. And on average, we do expect to be flat year-over-year with some variability quarter-to-quarter.

One of the things that I'm excited about on the expense side is we've had very good success and hiring new revenue producers. And if you look at just the stream of press releases over the last several weeks, you'll see that we're having very good success recruiting bankers all across our franchise. And I think the point I'm really trying to make is not only are we bringing good people into the organization, we're controlling costs while still continuing to invest in growth and driving the business forward. So I think that combination is very positive for the long term.

And the next question comes from Ben Gerlinger of Citi.

I know you talked through CET1 and the appetite, you could potentially go lower, but that's about 10.5%. And then kind of with the outlook for loan pipelines, it sounds pretty robust with that respect. When we look at the seasonality component, like your balance sheet balloons a little bit with mortgage. I get the mortgage is a little bit soft, but like how should we think about buybacks over the next couple of quarters, given you're fairly close to the 10.5%. Is it more opportunistic? Or because the capital needs to go to growth, how do we just think about the next couple of quarters here?

Yes. We will be opportunistic as we always are, and we have said that to the extent that mortgage warehouse lending pushes down on a temporary basis our CET1 ratio, we are not uncomfortable with that. Our mortgage warehouse lending business has exceptionally low credit losses historically. We see it as more of an operational risk and our team does, I think, a very good job of controlling risk in that business. So to the extent that, that pushes us down a little bit here and there, that does not cause us concern in the near term.

And so against that backdrop, we will continue to be opportunistic to take the excess capital that we believe we have and that we generate and use that and share repurchases or repatriation of capital to our shareholders.

Yes. And just to add on to Bryan's comments, it's noted in our presentation over the last 10 years, our mortgage warehouse business has averaged about 1 basis points annual net charge-offs.

Yes. No, that's great. I wasn't worried about the credit components, more so just the usage of capital over the next -- but that's a great answer. I appreciate the time, guys. That's all I had.

The next question comes from Timur Braziler of UBS.

Looking at the expense guide relative to revenue, the revenue guide is still pretty wide in range versus a pretty tight expectation on expenses. I'm just wondering how agnostic the expense base is towards the different ranges of the revenue guide and kind of what's embedded as the baseline now for the flat year-on-year expense?

Yes. It is agnostic to the revenue guide with the exception of the countercyclical businesses. If we hit the higher end of the range and more of it comes year-over-year from the countercyclical businesses, you can assume a 60% commission on that amount. But what's built in is flat countercyclical revenue year-over-year to that flat guidance. But I don't see -- Bryan talked about new hires, new hires were built into our expense guide, branches were built into our new expense guide, a consolidation into a new hub in Charlotte is in our expense guide. All of the investments are already in there, and we believe it's flat.

You talked about the range of the guide. Every CFO will tell you, it's easier to control expenses than it is revenue. And so the range for the guide is really the uncertainty of the economy that we're looking at right now. Bryan mentioned earlier, could we see economy start to rebound, the consumer confidence and more spending and loan growth. That is what's driving our large range, not our internal understanding of where we think our businesses are going. It's just really hard right now, Timur, as you know, to figure out what type of economy we're going to be lending into and what's going to happen in the wealth business over the next 3 quarters.

Great. And then as a follow-up, there's some increased conjecture maybe this week surrounding M&A, all the volatility that's going on in the market right now. Could you just give us a reminder on both sides of M&A, kind of your update expense here?

Yes, nothing's changed with respect to M&A. As we've said, our #1 priority is continuing to focus on the profitability of our business and driving the benefits that we can realize by investing in our core franchise. And we have said that opportunistically, we had the opportunity, we felt better about our ability to do fill-in in our existing footprint. We have, as always, taken an approach that we're going to maximize return on capital for our shareholders and we're going to evaluate any opportunity that presents itself, but nothing has changed in terms of our thinking around M&A.

The next question comes from Anthony Elian of JPMorgan.

Hope, to put a finer point on NIM, last quarter, you pointed to a range in the [ mid-3.4s. ] But you've clearly outperformed that for a couple of quarters now. Just given the earlier comments on loan yields, deposit costs ticking up slightly, how are you thinking about NIM here?

Yes. The mid-4 comment was about stabilization when we saw a flat interest rate environment, more consistent spreads. Near term, we do expect to be in the high [ 3.4s, ] within a few basis points of where we're at right now.

And then on capital, given the recent proposals, have you quantified any of the estimated impacts or benefits you'd see from the recent proposals?

Thanks, Anthony. We have calculated it and every consultant out there has sent us a deck and wants to meet with us on how to optimize it. It's really clear that it is positive for everybody. It will definitely be a pickup for us, especially in some of the proposals for mortgage, some of the proposals for our fixed income business inventory. But we have not put fine point to say that this is exactly what it is. There's still a lot of uncertainties out there in the model as well as how do we react to some of those, how do you change term of a loan, for example, gives you different capital treatment. But net positive for sure.

The next question comes from Christopher Marinac of Brean Capital Research.

Tom, I just wanted to ask about the reserve as it pertains to both mortgage warehouse and any other NDFI. Should we see that grow over time? Or how do you think about that?

Yes. Mortgage warehouse and NDFI is all part of our [indiscernible] and ACL reserve on the C&I business. I don't have it broken in front of me in terms of by specific lines of business. But overall, as you saw, we did add a little bit to our C&I reserves this quarter. That's more a reflection of some overall economic uncertainty around the conflict in the Middle East as well as what is that and how that is impacting discretionary consumer spend. Overall, I would say we're -- as I mentioned earlier, I believe we are well reserved from both the C&I basis as well as an overall ACL basis.

Specific to NDFI, I think what I would point out is -- and maybe helpful to break down the components of it. From the call report, you'll see we have a total of $8.6 billion of total NDFI. However, from there, about 55% of the mortgage warehouse business that we talked about with very low charge-offs and very short tenure with an average draw of under 20 days. And so the remaining $3.9 billion of nonmortgage warehouse NDFI, about 1/3 of that is categories that are NDFI in the call report that are really more akin to traditional C&I structuring and risk. And so therefore, what's left, the remaining 2/3 is really only about 4% of our overall loan book.

And the performance in that business, there's certainly some pockets with some elevated [ CMCs ] we have to watch, as you would expect. But the overall performance of that remaining book is actually not too dissimilar from our overall C&I book. In terms of the NPLs are actually slightly lower relative to our overall book, net charge-offs is slightly higher, but it's all very close to being in line. And so from my position, I don't think there's any specific reason to have outsized reserves tied to our NDFI book.

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

And so for us, NDFI is an operational risk for the fraud piece of it, we've seen collateral double pledged, we don't have that situation. We actually maintain the notes until they're sold. And that's something that is different than how some others do mortgage warehouse in the industry.

And just to make sure we're clear, the 1 basis point is the average annual charge-offs in that business.

Great. That's very helpful. Tom, just to clarify. So you mentioned that there are some charge-offs in the other NDFI, that smaller component. Are these kind of normal charge-offs? Or have these changed at all in recent quarters?

I would say it's relatively normal. I mentioned it's slightly higher than our overall net charge-off rate, but it's not anything alarming. I would also point out, I mentioned that -- okay.

The next question comes from David Chiaverini of Jefferies.

[indiscernible] on for David Chiaverini. Just a quick question around capital markets. Given recent yield curve volatility, I wanted your thoughts specifically around fixed income. And how sensitive is the fixed income trading desk to the current shifting expectations around Fed easing?

Yes, this is Bryan. The business has had its ups and downs, and volatility in interest rates over the longer term is good for the business. In short term, it can be difficult and the uncertainty in the way rates have been moving have created some volatility from week to week.

On the whole, though, we're pretty encouraged by the positioning of the business. Our ADR for the quarter was down slightly from the fourth quarter, but up significantly from a year ago.

So all in all, we look at the business as a very strong contributor and are optimistic -- our outlook is optimistic for the foreseeable future, recognizing that there are going to be potential events that can push rates up or bring rates down rapidly, but we think we're well positioned in a good place to benefit from that volatility over time.

The next question comes from John Pancari of Evercore.

This is Girard Sweeney on for John. So you highlighted that this is the third quarter of 15% plus ROTCE. Considering 15% target, how should we think about ROTCE trajectory going forward? Do you see a path closer to high teens or is maintaining the current level more of your priority? And if you were to get more to a high-teens level, maybe more of the 3 or a few steps that will get you there?

Yes. This is Bryan. We're making progress, and Hope pointed out, our ROTCE is up a couple of hundred basis points from a year ago. And we set 15% plus as a target. We did not set it as a destination. So we work to continue to build ROTCE. We think we will continue to make progress.

And to the extent that you combine 3 or 4 things, 2 or 3 things, depending on how you count them, one, the improved profitability that we're driving with our existing balance sheet; two, the ability to leverage our balance sheet, either through capital return or growth in the balance sheet and the combination thereof of the regulatory guidance of bringing CET1 ratios down, we think we have the ability to push those ROTCEs up over time. I'm not going to try to put a fine point on it today. We're confident with the progress that we're making. We're focused on driving those returns higher. And I feel good about the work the organization is achieving every single day in that regard.

Great. That makes a lot of sense. And maybe going back to the prior question on the fixed income business. Is there an ADR range you'd say embedded in your revenue guidance? I know there's a countercyclical side of it, but just how to size up from a modeling standpoint the rest of the year?

Yes. There are multiple ranges embedded in our guidance because, as I've said before, we trade NII for fee income or mortgage warehouse balances in a decreasing rate environment. And so we do not have a single outlook to hit our guidance, regardless of whether rates increase, stay flat or decrease, you'll just see the revenue come from different places.

We have no further questions at this time. So I'd like to hand back to Bryan for closing remarks.

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

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

We have a fireside chat this afternoon with Bryan Jordan from First Horizon. Bryan, thank you for being here.

Thank you, Jon. Thanks for having me.

You're welcome. I'd like to do this in every session just because we have a lot of interest in bank stocks. There are generalists on the line here. But give us a 30,000-foot overview of First Horizon.

Yes. First Horizon is roughly a 12-state southern franchise. If you think about the Southern United States from Virginia to Texas and Arkansas to Florida, we have a lot of opportunity for growth in that footprint, an extraordinary footprint, and we're very excited about where our presence is.

Our business today is really the merger of First Horizon, which was largely a Tennessee and Carolinas-based organization with IBERIABANK, which had a big presence around the Gulf. We had some overlap in Florida. So we're in some of the best markets in the country. We're largely a commercial and consumer banking organization, lean is a little bit more commercial. And then we have a number of specialty businesses, which give us balance across the rate cycles given the nature and diversity of those businesses.

Okay. Good. And economies that you operate in are obviously strong economies. How are you feeling about things today?

Yes. We are -- as you said, we're in very strong economies. Unemployment rates are low. We're seeing good growth in migration. While it's not statistical in any way, shape or form, if you look at the U-Haul index where the one-way trips terminate, most of the top 10 cities are in our footprint, and we have a presence in most of those cities.

So we're in very good growth areas, a lot of in-migration, tax law, labor law, all are very, very good. And the climate is such that you can be year-round outdoors in most of the South. So we're encouraged by the momentum we see there. I think the Southern United States is probably going to be one of the big growth engines of the U.S. for the foreseeable future.

Okay. Good. We were up here a year ago. You made some promises. You delivered on all of them. How do you feel about the momentum coming out of '25 and going into '26? And what are some of the key focus areas for you in '26?

Yes. I'm really proud of what our team has accomplished really over the last 2.5 years. And the progress in '25, I think, was a year of building momentum. In 2025, we spent a tremendous amount of time articulating to our entire organization, a very simplified but very deep and broad framework for how we think about going to market across all of our businesses.

And essentially, what we did is we took our 70, 80-page strategic documents or strategy documents and reduced them down to 6, 7 pages. We touched 99% of the organization. And I see that momentum building across the year. We were working very hard. I mentioned sometime in the middle of last year that we thought we had $100 million of pretax profitability revenue driven that we could create $100 million plus. I feel good about the progress we're making on that. And I'm also encouraged that we still have something in the order of $100 million that we can capitalize on.

And so our focus has really been driven over the last couple of years to narrow our business to focus on the places that we deliver value for shareholders to be differentiated, to narrow the business in such a way that we're not trying to be all things to all people. And then to do some of the necessary work we had.

I mentioned the integration of IBERIABANK and First Horizon and the 2 cultures, but to spend some time really making sure that our consumer strategy was very consistent in the way we went to market, the way we go to market in terms of our commercial or our specialty businesses and to really focus the organization on driving very broad, deep relationships and a lot of profitability.

Okay. Where are you on the $100 million PPNR?

We're still at a point that I'm comfortable talking about $100 million of economic or revenue improvement. That will start to diminish over time. But today, while there are probably tens of thousands of individual little actions that have to be taken in most of them, our RMs, PMs, our banking teams have to do a lot of work. They're imminently achievable, and it's everything from making sure that if we initially discount the treasury management revenue, for example, that we get that discount worked out over time or that we introduce our private client wealth management folks to our big consumer customers that we introduce private client wealth management, corporate treasurers and CFOs.

And so it's lots of tens of thousands of little things, but we're seeing much better progress on those. Our treasury management discounting has significantly reduced. We're doing a better job introducing private client wealth management, delivering TMSOs and reducing loan-only or taking -- transforming loan-only relationships into full broader relationships. And that's progress that will play out over the next couple of years. So right now, I still think it's easily another $100 million of profitability.

Okay. Good. Like all sessions, if you have questions, just put your hand up, and we'll make sure they get addressed. I have 2 pages for Bryan, and we'll see if we get through them all. Lending, it seems like you feel good about the economy generally in your footprint. How would you characterize the start to 2026? How are you feeling about demand and pipelines?

Yes. It's really been a good start to 2026. The momentum we had in the fourth quarter was very good. Our loan closings, our pipelines in the fourth quarter were good. Progress into the first quarter has continued to be very good. If I break it down our C&I business, which is roughly half of our loan portfolio is doing very well, and it's probably up a little over 1% on a linked-quarter basis. It's -- so we're seeing good progress there and pipelines continue to be very strong.

We're still seeing a little bit of excess payoff in commercial real estate lending. So it's flat to down a bit. But I heard just yesterday in talking to the head of our commercial real estate business, our pipelines there as strong as they've been since 2021. And then we have the typical seasonality that happens in the first quarter in the mortgage warehouse lending business, but we're essentially flat with where we were in the fourth quarter.

So when I look at the seasonality and the impacts in our business, I feel very, very good about where we are from a loan growth perspective, and I expect that we'll be right in line with what we forecasted for the full year, which is right in that mid-single digits. If I said it another way, if I look just at the first quarter, I think our net interest income is going to be right in line with where we internally had forecasted. So I feel good about how our balance sheet is positioned and the data we use to build up to the expectations we laid out for the year.

Okay. Good. You talked about CRE last quarter on the call. I think you just alluded to the fact that maybe there's some paydowns, but what's really happening there? And what's causing that inflection?

Well, that's a business. We -- a lot of what we do, substantially all of what we do in commercial real estate is short-term construction funding. And so when you originate a loan, it funds up over a period of time. And once the project starts, the equity goes into it first, and so it takes a while to fund up.

And when it gets to maturity, that loan will pay off. And so it builds up and it pays off. So it's a cliff nature. There was a bit of a slowdown in -- excuse me, in commercial real estate construction, particularly around the higher inflation and not anticipating construction costs, what is the cost for the steel, the concrete, the labor, so on and so forth. That's come back given that inflation is at a much lower level and interest rates are in a better place. So people can forecast projects.

So that's a business that we think is turning the corner, maybe a quarter or 2 earlier or a quarter or 2 late, but we feel very good about the closings that we've had there in the pipelines. And the way I describe that, may be a bit of a southernism, but it spring loads the balance sheet because you close a loan in December, you close a commercial construction loan in January. It's going to fund up over 3 to 4 years. So it just builds in loan growth over time.

Okay. And then the other comment on mortgage warehouse, it seems like you've kind of -- you've bucked the trend, some of the seasonal trends there. What's driving that?

Well, our mortgage warehouse business is a national business, and that's a line of business that has been through a tremendous amount of change just in the industry. And we had an awful lot of work done last year to bring new-to-bank relationships onto our platform. And so we broadened and deepened the relationships that we had across the industry.

And two, with interest rates having dropped, I think we're on the verge of starting to see refi activity pick up. Now we've had the short-term ups and downs in the 30-year and the 10-year -- 30-year mortgage and the 10-year treasury have bounced up a little bit, but I think it will be good for pull-throughs. But I think the vast majority of the momentum that we're going to create out of that business will really be by the great work our teams did expanding our customer set over the course of '24, '25, while the industry was changing the way it approached mortgage warehouse lending.

So good business for you, but some upside.

It's a very good business for us, and it's seasonal. And if you wanted a straight up line or low left to high right loan growth number, it's not a -- it's not business is going to produce that because second and third quarters when people move and they buy homes and so on and so forth, it's going to expand in the second and third quarter, and it's going to cycle down in the fourth and the fifth. But we believe we have unique positioning in the business.

And two, in terms of the profitability of the business because we can leverage our cost structure, it's a very profitable business for us. And so we're willing to deal with a little bit of the cyclicality given the overall profitability of the business.

And then the second, maybe more important point is it tends to be very countercyclical. We manage our net interest margin to be asset sensitive. And so when interest rates are falling, it impacts net interest income, but we have these countercyclical businesses like mortgage warehouse, where rates fall, volume goes up because of refinance activity, and it ends up being something that keeps us much more neutral in terms of our income statement.

So when Hope and the team put together a set of projections for 2026 or guidelines or guidance or whatever you want to call it, we run a bunch of different rate scenarios, and we don't try to break out net interest income and fee revenue simply because our business is relatively balanced, and we're going to be consistent whether rates are going up or whether rates are trending down. We're going to be fairly consistent within some reasonable range, and mortgage warehouse is a big part of that.

You're taking away all my margin questions.

I didn't have any, I'm just [indiscernible]. Well, I'll tell you what's going to be next Thursday.

Just -- related to that, though, I understand what you're saying on net interest income, but the deposit, you guys have had kind of a wild ride on deposits over the last 3 years. I mean a lot of it is obviously not a First Horizon issue. It's generally an industry issue. But how are you feeling right now about deposit pricing and gathering? You've had a lot of success, but it feels like now it's getting a little bit more difficult and tougher. What's your assessment of the environment today?

Yes. I think I think we're in a secular change in the way deposit pricing is going to work. And some of it is very much driven by technology and the fact that any of us in this room can move money from one place to another without getting out of seat that we're in right now. And so there's a whole lot more transparency about rates. So I think we're in a longer-term shift.

I think that the evolution of what's happened with the Fed's balance sheet, in particular, the fact that it expanded greatly during the early days of COVID and has trended back down will put more pressure on the size of the deposit base. And I think over time, you're going to have a shift in the way digital tokenized deposits, but things like that affect the industry. So I think we're in a period that's secular, you're just going to see an upward drift in deposit cost that drive towards more wholesale type funding levels.

Given that, it's incumbent upon us and everybody else to do the other things that I've talked about to drive profitability by building relationship and making sure that you have broad, deep relationships and that you're not in any way, shape or form, a one-trick pony. The near-term dynamics, and I talked to -- we heard from really all of our market leadership yesterday, deposit competition is still very strong in our footprint. There are still a number of special rate offers out there.

But I would say, given what our expectations have been for the first quarter, we've done a really good job of managing deposit costs, and I feel very good about the trends that I see in our -- broadly deposit base. And I think we're very well positioned to compete very effectively to not only grow that deposit base over time, but to do it in a way that, as I said, connects it to broad deep relationships and stays away from trying to create short-term transactional money.

Okay. would you welcome a couple of cuts? Would that be good for the bank generally?

Our forecast, our plans are built on a couple of cuts. Given the balance in our business, I would say I'm largely indifferent. And at this point, I couldn't begin to -- I wouldn't know whether to flip a coin or place a bet on either side right now because I can make arguments both way. But I think we're largely indifferent.

Okay. Okay. How about an update on the fixed income business is performing?

Yes. The fixed income business has continued to be very steady. It's consistent with where we are, we're in the fourth quarter. The volatility of the markets, you'll have some spectacular days, and you'll have some days that slow down depending on whether rates are backing up or coming down. But we're right on track. We're -- I would guess through the quarter, we're right in that $750,000 area on a quarter-to-date average daily revenue. So the business is sort of on track with where we expect it to be.

So you're feeling pretty good at this point from a revenue growth point of view?

Yes. I feel really good about the momentum in the business. And I do believe that we are in a very good position today given what we know about the world and the economy and interest rates and everything else that we can deliver on our expectations for profitability improvement in 2026. And so in terms of what we laid out in January expectations for the year, we still believe we're squarely in the middle of that framework.

Okay. Okay. Good. How do you do it on expenses, the flattish expense growth? And how confident are you in that outlook?

Yes. I'm confident in our ability. We have a number of things that have just been high spending levels in certain areas that we can clearly bring down in 2026. We believe we built a plan that gets to that flattish level and flattish is defined as everything and then average daily revenue and the commission businesses might affect it a little bit here and there, but generally flat across everything else. I'm pretty confident and our ability to manage to that.

We built a plan that has us building or opening new branches across the year. We had very good hiring of relationship teams and specialists across a number of different areas, including a new consumer banking head and a new CISO or Chief Information Security Officer. So we're building out the team, and we're hiring bankers. We're really looking to grow the organization and our capabilities and doing all of that in a flat expense budget. And I feel pretty good about our ability to get that accomplished.

Okay. Category IV cost, what's the latest update there? And how are you thinking about that? -- just wait?

It's interesting, Jon. If we were here a year ago, I would have said I'm less certain, but it looks pretty dark if the plans got carried over from TLAC and you don't see any more tailoring in the industry. I would tell you today, it feels like that the Federal Reserve and the OCC primarily are moving in the right direction and that tailoring is an objective of the current regulatory regimes. And that things like TLAC are probably not going to be a significant issue and that the thresholds around $100 billion in assets, whether it's through the work that is happening in Congress or whether it is through what's happening with the regulators, it's going to be less of an issue.

So I spend a whole lot less time worrying about the size of the balance sheet and bumping up against that $100 billion threshold. We still have plenty of time. We still have plenty of room to essentially grow our balance sheet 20% before you start bumping up against the $100 billion threshold. But I think we're in a much better environment today. So I'm less concerned about it.

I would say we have also a pretty good sense of what our gaps are to being $100 billion compliant, if that's still the number. And if it's on the expense side, it's probably $25 million to $30 million of annual run rate. What we have done is we've sort of looked at what's required at $100 billion, and we have tried to be very thoughtful with that list and say these things make us a better managed organization. We're going to incorporate that in what we do on a daily, weekly, monthly basis.

And these other things, we will wait until we cross that threshold. An example of something that we're doing, and it's something that we've done consistently even when the threshold was changed last time is stress testing. So we stress test our balance sheet on an annual basis. We disclose that and show how our balance will perform versus the CCAR testing that our larger competitors are doing. So we try to manage the business in such a way that we're not going to have a big stepwise cost adjustment.

Okay. So PPNR message is you feel good about, at this point, the midpoint of the revenue guide range, you feel good about flat expenses. If LFI -- if we're at $150 billion or $200 billion, maybe there's a little bit of room on expenses. Is that a fair assessment of where we're at right now?

Yes. Well, the LFI won't impact 2026. So that probably doesn't make much difference in 2026. But I think there are enough levers in there that if something needs to change, we've got the flexibility to manage our expense base. But today, I think we can make all of the investments we need to make in people, skill set, technology, banking centers and do it in a way that we can manage to that flattish level.

Yes. Okay. Good. Any comments you want to make on M&A generally? It obviously depends on the quarter. And people were surprised with the third quarter comments. As you know, I didn't think it was that big of a deal, but how are you thinking about the optionality of the company? And if we get a Category IV, if it goes away or we go to $150 billion or $200 billion or $250 billion, how do you think about the outlook for the company?

Yes. I think M&A gets -- because of probably language I used, got more attention in the back half of 2025 than it really occupied in terms of our thinking. I do think as an organization that we could do a small fill in, and I'm talking about low single billion dollar sized balance sheets where if we could fill in, in a market and really pick up a high-quality set of banking centers and deposit base and customers, that might be something that would be interesting.

From an overall perspective, I would say, given what I've said about $100 million of incremental revenue that we think that we can grow in the business and our ability to invest in growing our franchise and execute on the hiring and the plans we have in place, it seems like anything significant in an M&A is largely a distraction. And so it's not a big priority for us today.

So unless something significantly changes in the next -- whatever it is, it feels to us like growing our business organically, investing in our existing franchise and continuing to return capital to shareholders is a way for us to think about improving the profitability of the business and creating shareholder value.

Okay. You've been surprised by the negative reaction on the M&A discussions. I mean, when I think about capital, IBERIA, what you've done in the past. There's been a lot of M&A that has built First Horizon over the years, and it just seems to be a very negative reaction when it comes up today.

Well, having -- you gave a couple of examples, having lived through it, I think there are 2 aspects of it. One is when you announce a transaction and it takes a period of time to integrate it, it really does change a large transaction. It changes the story, and that's where the focus goes for some period of time. And given that if you want, you can go away for a year, 1.5 years. And then when it gets done, then the story might be interesting again. So I think that's one aspect of it.

And I think the other quite bluntly is I think people think what changes the optionality that you have as an organization that if something compelling happens upstream that your dynamic in the environment has changed. So I was probably surprised by the level of reaction we got in the third quarter, but I've seen the reaction to a lot of M&A that's been announced in the last, call it, year. And so it's -- I understand what investors are thinking.

Okay. Okay. Good. The buyback -- the big buyback. How do you think about that? And how does it align with some of your capital targets? And how aggressive would you like to be from here?

Yes. Buyback has been very, very useful to us, and it really has enabled us to work our capital ratios down to something that we think is much more commensurate with the risk in the balance sheet, and I'll come back to that and also in line with peers. I expect that in the first quarter, we bought back roughly $900 million worth of common stock, another $300 million in dividend last year. I would guess this first quarter, we'll probably end up somewhere in the $250 million area of buyback.

We've said on a near-term basis, and we've walked it down from 11% to 10.75%, we're now targeting a 10.5% CET1 ratio. And we think over the long term, 10% to 10.5% is probably the place that makes sense. The asterisk I put on buyback is relative to peers. I think as the industry evolves and some of the excess capital comes out across the industry, I think it gives us opportunity to push closer to that 10% level and then evaluate whether it's 9.5% to 10% where we've operated very well in the past. It really is important to capitalize organizations based on the risk and the balance sheet.

And my guess is, from an industry perspective, we're going to be in a much better position to think about individual risk. So said another way, you don't want to screen low on a capital level in terms of industry comparisons, but we think it gives us -- as the industry changes, it gives us some room to continue to return excess capital to shareholders. And we believe very strongly in driving return on tangible common equity.

I know CET1 is a different ratio, but it's a pretty good proxy and that managing that and getting excess capital back in shareholders' hands is probably the most attractive way of -- it's better than putting it a bad use. So we're going to deploy it everywhere we can organically. And if not, we'll just find a way to repatriate it.

Yes. Okay. Got about a minute left, if anybody has anything.

And I'll mention on capital return. In January, we increased our dividend $0.02 per share per quarter, which I know for a lot of investors is sort of not the big thing that folks are looking for, but it is a sign that we have confidence in the earnings capability and that our payout ratio on dividend had gotten relatively low versus the earnings power of the organization.

Okay. Okay. Anything else you want to touch on that we didn't touch on?

No. We have one question here.

I can -- I'll repeat it, yes.

Just you mentioned that the deposit competition in the market you guys [indiscernible] you're achieving what you desire and want despite that, would love to hear what the end-to-end looks like? What you're doing and a couple...

Question was on deposit competition and how you're handling it?

About the hand to hand. Let me I'll tell you all the rate specials. There's -- when you have an economy that is as good as where we are in the South and you have as much growth there and the number of people who are building branches, it is -- it really is going to be a competitive environment.

So I'm not particularly troubled by that. I think it's just part of being in some of the best markets in the country and that we'll see a lot of competition. Our bankers have plenty of flexibility, in my view, to manage the competition as it shows up. And we have been very responsive. So it's -- you pick the market, and I can tell you who the competitors are. I'm not going to do it from here. I'm not going to do it from anywhere, really. But it's different in every single market, and it's really a function of having good markets and new competitors or people who are trying to expand their footprint.

That's all we have time for, Bryan. Thank you very much. Thanks for being here.

Thanks for having me, Jon.

Hello. Good morning, everyone. My name is Michael Rose. I'm one of the bank analysts here at Raymond James. Thank you so much for being here with us this morning. I'm very pleased to have First Horizon with us today with roughly $84 billion in assets and a market cap of about $11.5 billion. First Horizon is a top 25 commercial bank with operations across the Southeast and in several Southwest markets. It also operates specialty -- several specialty banking segments as well as provides a broad range of banking services for both corporate and retail investors. With us today from the company is CFO, Hope Dmuchowski; Chief Credit Officer, Thomas Hung; as well as Director of Investor Relations, Tyler Craft in the audience.

Before I jump into questions, I just wanted to pass the mic to Hope for any opening remarks. Hope?

Thank you, Michael. I just want to thank you all for being here and say it's been another unusual start to the year. I had all these prepared remarks over last week when Michael sent us the questions, and now it all seems completely different this morning. But I think this is somewhat the new normal.

Proud of First Horizon, where we've been in the last couple of years, as Tom and I were prepping for today and a lot of the questions you have, we just kept saying, well, First Horizon continues to form regardless of increasing rates, decreasing rates, closing an MOE in the middle of COVID, a deal that doesn't go through, we could not be more proud of where our company is, the strength and stability of our balance sheet, the strong client relationships we have, and it is a great time to be a Southeast bank.

I would agree with that. Hope, maybe we can start at a macro level. Obviously, 2025, there was a lot of volatility. It seems like there's a lot of volatility now. We had some high-profile bankruptcies in the fall. Some of that resurfaced last week overseas. Just as we think about kind of as a recap, what are some of the milestones that the company achieved last year for the benefit of the audience? What are some of the things that you're most proud of? And then what are a few things that you're working on that we should contemplate as we move through the year?

Yes. The thing that we're proud of and what we achieved earlier than we had committed to investors is sustained 15% ROTCE in both Q3 and Q4. We did an Investor Day in June of 2023, we said that we were targeting to mid-teens ROTCE. We got there about a year earlier than we had told the Street. So as soon as we saw that we were going to print a mid-teens number, we had another conference, not yours, but a different one, sorry, yours was not at that time. And we said we're going to hit 15% ROTCE was our next target. As soon as we hit 15%, we said 15% plus ROTCE. So we really focus on how do we return profitably to the shareholders. Top line growth that erodes shareholder value is not the way to grow a business for the long term. We've been here for almost 162 years, and we run the bank to be here another 162 years.

I'm also really proud of our credit. As we look out at all of the different economic factors that we faced since 2019 and 2020 when we closed an MOE in the middle of COVID, our credit has held up really well. We brought our Chief Credit Officer, Tom Hung here today. I'm going to ask him to talk a little bit about our underwriting discipline that helps us through any economic scenario.

Yes, absolutely. Thanks for bringing up credit. I think last year, we -- I'm also proud of the fact we reported close to 3% net loan growth while maintaining some of the strongest credit quality in the whole industry. I think it's one thing to grow. It's another thing to be able to grow, maintain your credit discipline and continue to perform through all the twists and turns we saw last year.

Great. Maybe sticking along those lines, deregulation was a big theme last year and will continue to be as we move through this year. From your perspective, what are some of the developments you are most excited about for both First Horizon and the industry? And then what actions does the company plan to take to optimize new regulatory frameworks? Obviously, it's a broad topic, but we'd appreciate your thoughts around things like Basel III end game, asset threshold, stress testing and the like.

Yes. The quick change we saw with the change in administration is the pace of new rules. There's been no new rules proposed by this administration. At the changeover, there was over 30 pending rules. And it was exhausting for banks to constantly get a new rule, get a proposed rule, put in your commentary period, then get the final rule, then implement it. And we were doing 20 or 30 at any given time for a few years. And that pace was just really distracting to the organization having to put new guardrails up, new policies, procedures, new second line checks. And so it's been really great to be able to run under a set of rules that isn't changing.

As far as the rollbacks, we do continue to hear from Miki Bowman that we're going to see some resetting of the threshold. So hopefully, that $100 billion would move up somewhere we're hearing anywhere from 150 to 200. Nobody's really said exactly where, but at least it sounds like it will be material. And that gives us a lot of room to grow organically. We've talked before, we did our LFI preparedness. We were in the first year of getting ready. We have a road map. But if that gets moved up, it gives us significantly more time to focus on organic growth, returning profitability to shareholders and not having to put all those new LFI requirements in.

Yes. I would just add, I feel very, very good about where we are in our regulatory relationships. I have a very regular dialogue with our regulators. And ultimately, we all want the same thing, which is to build a safe and sound bank. But the collaboration between regulators and ourselves, I'm very pleased with.

That's great. Thanks for sharing. But maybe just separately, I know it hasn't been too much of a topic here as of late, but there's still some discussion around the future of stable coins in banking given maybe some more of the recent debates around interest-bearing coins and criticism of the GENIUS Acts efficiency. So maybe if you can just walk us through that.

Yes. We're, like everyone else, waiting for the rules to be finalized on the new GENIUS Act. I think it was announced last week or the week before by Bloomberg. We are one of the key banks that are part of the new carry network that [indiscernible] setting up that I think -- I don't think they've announced how many exactly banks. I think in an article, they said a dozen or 2 dozen have already signed up, and I know they have more in the wing so that we can create a stable coin that's made for and run by the banking system instead of each one of us trying to do our own, being a part of that, being an early investor and adopter, I think, is one of the ways that we're doing that.

We are also -- our wealth platform converted to LPL at the end of last year. LPL is looking at how do they custodian that. We also have just about every vendor coming in to meet with me or the Head of Product or Head of Technology because they have every solution for the rule that hasn't been written yet. And so constantly just looking at what they're doing, what are the different options. I think it's going to move quickly once the rule is done, and our goal is to be ready for it.

Can you discuss the carry network for the benefit of the people in the room? I'm not sure everyone is familiar with what's trying to be built.

Yes. The carry network is a collection of banks that are looking at how do we issue and move stable coin across the banking system in an efficient, safe way. I mean that really comes down to it. A lot of the bigger banks are going to issue their own stable coin. They have global infrastructure for the regional banks and the smaller banks being able to pull our intellectual property. There was just a meeting last week or the week before, where all of our cybersecurity experts got on the call and talked about how to build the network. So you're being able to use a larger group of specialists to help build something that benefits the banks that are part of it.

Great. And maybe just sticking with technology. I mean there was obviously some noise last week in the past couple of weeks just around AI and what it could do to the banking system as a whole. Just -- I know you guys have a team in place. You talked about that on the past call. Maybe if you could just provide some of the objectives there and discuss when you estimate some of the cost savings could actually flow through and how meaningful they could be from a net perspective?

I would say we're already starting to see the cost benefits come through. We have flat expense guidance this year, excluding our countercyclical businesses. And our flat expense guidance includes us hiring new bankers, investing more in technology this year than last year, opening new branches. So why we're investing, we're able to maintain costs. Part of that is AI.

What we're really seeing is the ability to add efficiency, quality and scale. And so we have not had the -- oh, we're going to take up 20% of a team, but we're not having to hire up as we have 3% loan growth. I'll have Tom comment. We just had our top leaders together in Memphis. You were nice enough to join us at our leadership forum, I think it was a year ago. And so we had that again last week, and we had a whole session on AI and technology and our credit -- our Head of our Credit Analyst team presented a new AI tool to help make credit underwriting easier. So I'll let Tom talk a little bit about that, but just a proof point of how we're continuing to iterate and find new ways to use it.

Yes, I would love to. I think there's a lot of talk already about the efficiencies of AI, what it can do in terms of making a financial analysis, financial spreading more efficient, faster, quicker, more accurate. I want to spotlight actually something a little bit different. What I'm even more excited about beyond just the efficiency is what it can do in terms of data analytics.

With a portfolio the size of ours, of course, we're always trying to look at comparable data, operating comparables across geographies, across industries. AI and what it can do not only makes that a lot more faster, a lot more efficient, but also allows us to pull in a lot more data. And beyond -- and not just within our own portfolio, but outside of that, the wealth of information that are in public filings everywhere, the information that can be pulled from the footnotes to public filings, that's a lot of great data we can use as well to make better, faster decisions, and that's what I'm really excited about.

And we're also seeing AI really impact the client. All of our partners where we have a software partner or provider are rolling out Agentic AI. Salesforce was an early adopter. We were one of the early banks on that. We've seen great success. We have better next best action for our clients, better list on who would be the right person to offer this to. In fact, our marketing budget has been a little over a couple of quarters because it was so good that the take rate we were modeling the offers on, it's actually coming higher because it has such quality data algorithms within Salesforce using our client data to say, here are the clients you want to market to, here's the clients you want to call.

And so we're seeing it penetrate everywhere. I don't think it's this one and done or one way of doing it. It's got to be bottoms up where everybody is using it in the company. We've talked before, Michael, with you about how we built our own. Before Tyler Craft became the IR Director, he was the Head of AI, and he rolled out our own ChatGPT called ChatFHN that we all get reports on who the top users are. I'll tell you last month, I got my report on who the top user and my team was. I said, "Tyler, who is that person?" I didn't know him, 4 levels down, incentive analysts, who's doing the incentives, incentive season, and he had maybe 2 or 3x anybody else use the tool.

And so you're even able to see how some of the talent that may not be telling you they're using it is making their day so much quicker, so much more efficient.

That's great. It's going to be interesting to see the way it evolves over the next decade or so. Maybe if we can move on from high level and maybe move into some of the client segment stuff. And I know loan growth looking mid-single digits this year. Are we kind of at the point where you're seeing broader signs of comfort from borrowers. I know this last week is probably thrown a wrench into some of that. But certainly, the environment, I think, was feeling better. I think what we've generally heard around credit has been pretty stable. Borrowers are getting more comfortable borrowing.

Can you just talk to us about kind of the health of the borrower and the economy and what the prospect of potentially lower rates, although they're higher in the last couple of days, what that could mean for loan growth?

I'm going to answer that question with the caveats. I'm going to tell you what I would have said last Friday because I don't have any newer data from our clients 4 days into this Iran conflict to know how it's behaved. But our clients have gotten comfortable with the tariff rules. They've gotten comfortable with some of the decreasing rate environment, the unknown of when the next rate cut may come or if it comes, they've gotten comfortable with that. We saw strong C&I growth at the beginning of the quarter. We're continuing to see C&I pull through. CRE is still paying down a lot of the construction CRE that we did stabilize and then going into the secondary market. We don't want to 20 years. I mean that is how our professional CRE group works as we do the fund up when it's stabilized, it goes into the secondary market.

And mortgage warehouse is behaving seasonally as we normally see, which is Q1 a little bit lower. But lower-end consumers have been struggling for years. We haven't seen that get worse. I don't think it's going to get any better in the near term. Tom anything you'd add?

I'm going to start with the same caveat of it's too early to know really the effects of the events of the last several days. But if I go back to last week, I think the overall sentiment is certainly pretty good. We've come into the year with very strong pipelines. Hope mentioned CRE in Q4, we saw an increase in total CRE commitments as a bank. And so that just -- when we do a lot of construction projects. So what I would reasonably expect from that is we'll start to see some good fund ups in our CRE.

But if I look at where the peak was relative to where we are in rates, it's been 175 basis points. That's significant enough for there to be -- for projects in both the CRE and the C&I side that may not have penciled out at the peak to really start to pencil out now. And so that's why I think we're seeing it in our momentum in our pipeline.

Maybe just a follow-up on the tariff question. Now that some of that's been struck down, I mean, could that actually spur some loan growth in your mind?

Yes, we'd hope so. It was struck down and then it was 10%, and then it was 15%. I'm not sure. I think we're still at 10% for 90 days. It hasn't hit the front of the Wall Street Journal with the conflict going on. So I'm not exactly sure where the executive order is now. But yes, tariffs being rolled back, I think, would be very good. It continues -- we continue to hear from our customers that the tariff costs being pushed on to them. Their cost of goods is going up and they're not able to increase the sales pricing anymore. They were able to do that when rates were rising. They were able to do that after COVID, but the consumer has less discretionary spending. And so rate increases for them so it has been a pretty material impact to their last year.

Yes. I would just add, I mean, in isolation, tariffs going away should certainly help. But with the uncertainty of what's going on right now, we got to figure out which factor is going to have a greater influence.

I completely understand. Maybe we've heard you talk about the importance of the relationship between your bankers and credit teams. Maybe how do you think about taking your model to market? And then what does this do to create differentiation for First Horizon in the marketplace?

Yes. I think something we very intentionally do and something we're very proud of is we do push credit decision-making as close to the customer as possible. And so for us, what that means is my entire team of credit officers is literally dispersed throughout our footprints. They work close to the customers, close to the deal teams. And the big advantage of that is the credit analysis and the work that we do goes far beyond just looking at the numbers and reading reports and discussing things in a conference room.

Our credit officers are on site at our customers, visiting with them, talking with management. I'm a big, big believer there is so much more to credit decision-making beyond just ratios and numbers on a piece of paper. And I believe that culture, touching and feeling our customers, being on site, knowing their business, directly knowing the management team, staying updated, things don't always go according to plan. But when you have that type of relationship and you have that type of access, you're able to react a lot faster. When you add all of that up together, I think that's the biggest driver behind our consistently strong credit performance regardless of what's going on in the economy.

And what I really like about our model, we talk about this a lot, we run a decentralized model. Our credit analysts sit in the markets they're in. So when they're meeting with a prospect or a client, your credit analyst is there. They didn't fly in from Memphis. They didn't fly in from New York. They're part of your community. They know your community. They know the economic factors. They know what's happening.

We had a recent regional President tell us they were in front of a client. They had their credit analyst with them. They had the relationship manager with them, and it was a great client. Everything looked great. And they're like, "Okay, well, who do you need to talk to in order to get this deal done?" She's like, "I can approve it now." And they say, "What do you mean?" The credit analysts here, we've already looked at it. We can approve it. You're approved for this at this rate. Let's just run some underwriting. And they said, "That's it?" And she said, "Yes, the decision is made here with you."

Now if that client hadn't been so good, obviously, she would have said, "Well, let me go talk to my credit team." Poor Tom's team ends up being the bad guy that has to say no to the greatest client a banker has ever seen, but it makes a difference, especially when you are in the Southeast markets, which really pride themselves on being a part of their community, investing back in their community, and it has been a differentiator. But it comes with a cost. So we tell our bankers all the time, there's value in you and your team. And so we don't have the lowest -- we have a great margin. And one of the reasons we have one of the highest margins in the industry is we pay for that advice and counsel.

So we've seen a lot of banks move away from the decentralized structure over the past 20 years, and you guys seem firmly committed to it. It may be a little bit more costly to do so. But how do you limit risk by keeping a decentralized credit structure when others have moved the other direction?

Yes. I'm very proud of what we do on the risk and analytics side, the data analytics side. There's a lot of data that's always flowing between regions up and down the chains. And so that way, we always have a very good view across our whole portfolio. I believe to be able to have the type of sustained credit performance we've been able to have, what that really shows is consistency despite operating across the entire Southeast, a lot of different markets and a lot of very different markets.

As you can imagine, a Tennessee is very different from a Florida, which is very different from the Carolinas and elsewhere. But what we have is a very ingrained credit culture, offers, I mean doing this a long time. We're constantly communicating with each other. There's a lot of our knowledge sharing and data analytics going on behind the scenes. And that's why what you see has been consistency across the board.

And although it's a costly model on a personnel basis, if you look at our top-tier, top quartile margin with our bottom quartile charge-offs, I'll tell you that, that pays back over time because you have credit selection, you have knowing your client and you might be able to do it really cheaply from a call center in a centralized location. They have no idea about the client. They have no idea about the market. They haven't driven the street to know that the building next door is being demolished and all of a sudden, Main and Main is now going to be 10 blocks up where the new target is going.

And so I really, as a CFO, say, top-tier margin, lowest charge-offs, the model is really not as expensive as everyone else thinks it is.

No, I agree with that. Maybe we can just shift to deposits. You guys talked about deposit growth outpacing loan growth this year. I think you've talked a fair amount about your new treasury management platform coming online. And obviously, you continue to open up branches. How should we think about the intermediate to long-term deposit growth opportunity for the franchise, particularly given we've seen a lot of dislocation in and around your markets? And could you see that loan-to-deposit ratio coming down and the mix improving?

Yes. We've said we hope to have mid-single-digit loan growth and deposit growth. The H8 data isn't showing that quite in the economy yet. It hasn't been the booming start to the year that we were all hoping somewhere below 1% in H8 data year-to-date. But the way we think about it, it is treasury management. It's knowing our clients. We've talked before about we hired a new Head of our Consumer Retail business. We've broken that out from the regional presidents. So there's a singular focus on consumer versus commercial clients. As we've gotten bigger, that's really been needed. There's different product sets. There's different economic situations that hit.

And so as we look at it, we're comfortable with where our loan-to-deposit ratio is. We don't feel that we're -- we have an issue with. It's within our internal guardrails. The way we look at it is loans plus securities as a percentage of deposit and then we're peer average. So if we want to bring our loan-to-deposit ratio down, I would say we could take our next deposit and park it in security, but I'd rather take the next deposit and put it in a loan. So when we internally have our benchmarks, we look at loans plus securities. As much as I can grow the next dollar of deposit, I want to spend $0.75 of it, if not more, lending it to a client to continue shareholder value. But the new Fed chair, it will be interesting to see if he shrinks the balance sheet, what happens to deposits. If deposits in the U.S. economy shrink, loans are going to have to rationalize as well.

So I think there's a lot of wait and see, but it is hand-to-hand combat for deposits. It's not just rate anymore. I think a lot of shoppers have gotten a little bit tired of the rate shopping and moving their money every 30 or 60 days unless they have a wealth adviser doing it for you, but we had a top of market offer at the end of last year in consumer, and we didn't see the take rate we've seen 2 years before.

Have you seen those trends maybe accelerate here in the past month or so? It seems like other banks that we talk to have said competition seems a little bit firmer than it was maybe 2 or 3 months ago.

Competition, top of rate is back, but we don't see the money moving as we have in past years. I'm not sure if it's the uncertainty of the economy. I don't know if it's fatigue. We definitely see it in the wealth business because somebody is managing that for them. And when you look at the outflows going to JPMorgan Wealth or Charles Schwab, but you see it come in and out, right? It's more of an arbitrage on what their deal is. But the average consumer, we're really not seeing a lot of movement from them. Even when we have rate offers, we had some pretty nice rate offers that were equal to Fed funds at the end of Q3 last year in 2 of our growth markets, and we had a 10% to 20% pickup, and that was it.

2 years ago, when we did that, we raised $6 billion in 30 days. I mean we raised $10 million, $20 million in 30 days with an equal to Fed funds rate. And it was really a test in some of our growth markets to see how is rate playing out now. And it just really didn't make a difference. They still are looking for stability. They're still looking for product quality. What's fraud, the number one thing that we see for client accounts being closed or opened with us is fraud. Fraud on their account. The Trump administration has put a lot of time to start talking about fraud, how many elderly people are being hit by specifically. We can't stay ahead of fraud.

I'll go back to your AI question. The number one use case we have for AI right now is fraud. It's trying to figure out when we get hit in a day and you start looking for those patterns of what are the things that we should be looking for. We had a issue at treasury management, I think, in December, I start to lose track of what the months are, but we started to see and there were some really clear patterns of what bank they were clearing through the first amount, the second amount, the third amount, and we were able to say, okay, anything that does this stop it, send it to the banker, have the banker call the client and say, were you trying to wire this money out of your treasury management platform. We could have never done that with humans before. But they programmed it instantaneously look for these and then stop any payments going out of our treasury management system.

Very helpful. Maybe if we could just move on to capital and profitability. You mentioned earlier, Hope, about the mid-teens ROTCE target hitting it a year early. You've also talked about CET1 moving down. It looks like you continue to buy back stock through the quarter, if I look at the 10-K. How do we think about the timing to hit the target, bearing any significant regulatory changes? And is this the right longer-term range to consider? Or is there ability to maybe bring it down further over time?

Well, first, thanks for reading our 10-K. We put a lot of time and energy into writing that thing. I'm glad at least one person read it and found value in it.

Yes, well AI did. So...

I'm glad AI made it simpler for you. It's a long document to get through. When we are looking at our CET1, we're really looking out at where do we think the economy is going to go, what do we think the risk factors are and what do we second think loan growth is going to be that we hold top-tier capital for loan growth. That is our goal first and foremost. Second, we look at how do we deploy it for shareholders. We bought approximately $200 million of shares back this quarter. I wish we weren't doing it because had we had the 3%, 4%, 5% loan growth we were hoping for in the first quarter, we would have used it for that, but we are able to kind of flex in between is it loan growth or is it share buybacks right now. We announced a dividend increase in the first quarter as well as we're able to return excess capital to shareholders. We returned about $1.2 billion of capital last year to shareholders.

So we really look at the 3 in lockstep. We finished last quarter at 10.6 as loan growth has been pretty flat quarter-over-quarter with mortgage warehouse seasonally paying down. I expect we'll end around that this quarter. We do have a longer-term or near-term target that our Board approved to get down to 10.5 this year. But that 10.5 is we want to get there with loan growth. And so as we see loan growth pick up, you'll start to see more loan growth, less share buybacks, but trade one for the other in your model every quarter.

Well, that said, you may get an opportunity to buy back some more today. So we'll see. Maybe one for you, Tom. Can you just walk us through the kind of the puts and takes on credit, maybe what has allowed you to post such great metrics kind of over time despite a lot of volatility over the past 5 years? And then how should we kind of think about normalization versus historical trends? We talked about AI and the customer diligence. Obviously, the diversification of the loan book is something that I think is still underappreciated for First Horizon. And obviously, the underwriting has gotten better, I think, too.

Yes. No, I appreciate it. I think the puts and takes of credit at the end of the day, for me, I'm going to come back to the decentralized model that we have being close to our customers. Things don't always go according to plan. And we all know that. But when things it may deviate from expectations, being close to our customers, having that type of relationship and the focus on relationship lending we have, what that means is we're aware of things sooner. And the sooner you're aware of things, the better you can make course adjustments.

And on top of that, the other theme that I mentioned is consistency. Regardless of what's happened in terms of all the twists and turns in the economy and unexpected events, we have always stayed very true to our underwriting principles that have proven out over time. And I think between that and diversification we have, that's how we've been able to consistently generate the results we have. We've talked a few times about the events of the last several days. And will that have an effect on credit depending on how long it lasts, I would say that's a fair estimate.

But what gives me the confidence about our ability to perform through however this plays out is the fact that we also have that very well diversified book, as you mentioned, and that has served us well regardless of whether it was tariffs, whether it was COVID, whether it was disruption in the banking industry through many different events since we're diversified and we're disciplined in what we do, and we're very relationship focused and not transaction focused. Regardless of what's come at us, we have performed through all of that, and that's why I'm confident we'll do the same once again however this current Middle East situation plays out.

One request we've gotten from a few people, one of which is in the audience is questions around data center exposure. I don't know if you guys have talked about that before, but if that's something you could discuss, but it is -- we've gotten some requests from clients for screens and things like that, and it's hard dated to get it.

Yes. No, that's fair. I would just say we have very, very minimal exposure to data centers, software and that sector overall.

Okay. Perfect. We only got about 1.5 minutes left, so I've saved the best for last, but Hope maybe wanted to maybe talk now that we're about 2/3 of the way through the quarter. Just any updates to, broadly speaking, any of your guidance for the year and anything that is maybe a little bit better, a little bit slower. I think you touched on a few of those things, but would just love any updates.

I would say fee income is holding up as we anticipated. Loan growth and deposit growth is definitely lagging coming into the year from where we thought the year would start. But we've seen this many years before. We've seen it pick up. The opportunity we have ahead of us is really a mortgage refi wave. We're sitting with a lot of arms on our books as well as the mortgage warehouse business benefiting from that. There was a small period last week where the 30-year dropped below 6%. I don't think it lasted very long. We didn't see many locks in that half a day. But depending on which way rates go, I do think one of the big upsides for us would be a refi, the opportunity for our clients to refi and mortgage warehouse to see that pick up.

But I feel more and more confident every day that First Horizon is prepared for any economic situation that we will grow in line with what is healthy where can we continue to grow great long-term relationships that are profitable for us and shareholders. Long term, great to have Tom along with me talk about our disciplined credit underwriting so that we have confidence regardless of the economic cycle that the clients that we've had clients lessen with that we've chosen to put on our balance sheet are going to be there for the long term. We don't get them all right, but we are getting more of them right than most of our peers, which is the goal.

Lending is not a zero risk business. But I feel a little uncertain in the last 4 days, but I feel like we've lived this. It was the RBC conference last year, we were at when the tariffs hit the middle of the conference, coming into your conference is the Iran conflict. So it seems like there's going to be an investment banking conference somewhere out there, then something unusual is going to happen that we don't quite have the update for yet, but a healthy U.S. economy will continue to move forward.

That right. It's always in March. Well, thank you, Tom, Hope. I really appreciate it. Join me in thanking First Horizon.

We go ahead, and get started. So next up we have with us, delighted to welcome First Horizon. From First Horizon we have Chairman and CEO, Bryan Jordan. So Bryan, thank you so much. I think it's the first time Bryan has been with us. So it must be my lucky day. It is actually my birthday, so thank you. And we also have CFO, Hope Dmuchowski. So Hope, thank you so much to both of you.

And maybe I just think, Bryan, before we get into the near term and the outlook and what you're seeing, it's probably helpful just taking a step back in terms of the franchise, I think over the last couple of years, like when I talk to investors, they're impressed by the job you've done. Coming sort of -- if you just look at the sequence of events with the merger with IBERIABANK going into sort of the issues that TD had at their end, and then kind of reinvesting, doubling down on sort of getting the bank back on sort of track and on a good solid growth footing. Just talk to us about that journey in terms of where things were maybe a year or 2 ago and where things stand today when you look at the franchise.

Yes. I'm -- happy birthday.

Thank you.

And I am really proud of the work that our team has done over the last 2.5, 3 years, in particular. And if you go back to 2020, we announced in '19 without any idea because nobody had the pandemic on their bingo card. But we integrated IBERIABANK in the midst of the pandemic. And then we had that interlude with the merger agreement with TD. And if I think back about the last couple of years, I'm really proud of what the team did to upgrade and invest in our technology, build out our capabilities there to drive consistency across our business in terms of performance and business model. We spent the last 1.5 years putting together a 5- to 6-page document that literally takes a 70-page strategy document and boils it down to how we're going to execute, essentially, how do we deliver value for our shareholders, how do we deliver value for our customers, how do we execute on both of those things.

And so when I think back about the progress, the momentum in the organization has been very, very good. I'm impressed with what the team has accomplished. And more importantly, I look at the footprint that we have and think about the opportunities that we have for growth and expansion over the next 10, 15 years with just the organic opportunities in the South. We're very blessed with the franchise and the team we have.

That's helpful. Maybe just sticking with the growth opportunities. Just talk to us, I mean First Horizon has presence in some of the best MSAs, I would argue across the Southeast. When you think about strategic priorities, I think what are the marching orders to the bankers? And where are you seeing sort of that growth momentum? Like where should we expect that growth momentum as we think about the year?

Yes. We have a lot of momentum across the entire franchise. And as you said, you can come up with 8, 10, 15 MSAs where we have huge opportunity to invest. In the near term, Hope and I were talking earlier, our branch focus has been to build branches in the Carolinas, Raleigh-Durham, Chapel Hill, building out some in Texas, some in Middle Tennessee. But we have opportunities all across the state of Florida. We have opportunities all across the South. And when we look at our what I described earlier, the way we're executing, it is really focused on building out a consumer-driven model that supports our franchise with branch density and not that we'll ever be top 1, 2 or 3 or 5 density in any market, probably outside of Tennessee, but that we can continue to be convenient for our customers.

And then focus on commercial middle market banking, focus on our specialty businesses, including professional commercial real estate lending, all the way through asset-based lending and equipment finance and really execute in that middle market space with a highly focused and differentiated customer experience, trying to deliver essentially a commodity-based product set with a high degree of customization and value added by our bankers.

Got it. I guess, so when we think about all of that and the outlook that you put out in terms of loan growth, talk to us, I think you and I were together maybe this time last year. Just when we -- you just had the elections, there are still uncertainties around tariffs, what would happen fast forward to today, what are you hearing from clients and bankers around their desire to sort of act and actually borrow and draw down lines?

Yes. There's still some measure of uncertainty in the economy, but people are more optimistic today over the course of '25, we went through the Liberation Day tariffs to where we've finally settled out towards the end of the year. And customers are generally forward leaning. They're optimistic. People are looking for opportunities to invest and buy. My sense is people are encouraged by the lighter regulatory touch on the economy more broadly speaking, financial services included. But the people are optimistic and they're looking for opportunities. So as clarity continues to emerge as we continue to get trade agreements put in place and settle some of the known uncertainties. I think that we'll continue to lead in very strong growth. And I think the tax incentives from the One Big Beautiful Bill in the first half of the year will be good.

And our balance sheet, commercial lending has been was very strong in the back half of '29 -- of '25 of our pipelines headed into '26 continue to look very good. And so that is what I think will be the near-term driver. I think as you look at our business, commercial real estate because of the nature of construction-oriented portfolio where loans fund up over time will be flat to maybe down just a little bit of in the next quarter or 2. And we're holding the mortgage portfolio flattish. And then you've got the seasonality of our mortgage warehouse lending business.

But I think our loan growth and our expectations are to see as you highlighted, mid-single digits and let that be driven largely by our commercial and industrial lending businesses.

And just on the One Big Beautiful tax bill, there's a lot of discussion that the bonus depreciation that was there should really be positive in terms of business investments. Like for the longest time, there's been a lot of optimism. But then when you follow off with a lot of banks, are you seeing clients actually act on it? It's like that's still sort of yet to occur. Is it happening now? Are you seeing that happening?

Yes. It is happening, and we saw it throughout the course of 2025 in our equipment leasing business, for example. So that was a very strong business for us in '25. And I think there was a lot of enthusiasm about the economy and the business environment and the Trump administration really beginning after the election. We went through the uncertainty of the Liberation Day tariffs, but people have that excitement. And where we are from a presence standpoint, there is a bias in my view, towards growth and investment and a growing economy. And I think you're going to see the continued investment will build over time.

I guess maybe, Hope, maybe starting with you, just when we think about you move to sort of providing a revenue growth outlook, just given sort of the business mix. Talk to us, I think when we think about 3% to 7% outlook for the year, what are broader assumptions underpinning that? What needs to go right for us to get to 7% as opposed to 3%?

Well, first, happy birthday, again. Great way to spend it.

For us, when we look at the 7%, we no longer give NII and fee income because we end up trading one for the other. And so there's really probably two ways, or actually is two ways for us to get the higher end of 7%. One is higher loan growth. We really see significant pickup in loan growth back to what we saw pre-pandemic. The second is we start to see our countercyclical businesses rebound. We have not seen mortgage rates come down yet the way we would have expected with this many Fed cuts. Traditionally, what we're hearing from our mortgage team is that, that 30-year gets under 6%, we're going to have a big refi wave. We disclosed in our deck how many arms we have. Everybody that has an arm is expecting to refi. They're watching rates, they're waiting for something to happen. We have people that have already refied once and are now waiting to refi a second time, as well as our FHN Financial business. If we see a little bit of pickup in that, you get to the higher end.

So we don't need one scenario to hit the higher end of revenue. It's really where is the economic cycle and where does it hit throughout the year.

Got it. I guess, maybe just let's talk about the countercyclical businesses because I think it is somewhat unique to First Horizon. Maybe on the mortgage warehouse, you've seen some of the peers exit over the last few years. Just talk to us, to me, it feels there's a lot of torque in that business if things actually pick up. As you mentioned, mortgage rates go below 6%. Just talk to us in terms of the capacity in that business, what you've done in the last year or 2, and what that could mean actually for C&I growth and NII?

Yes. Bryan and I have consistently said, we like mortgage warehouse. A lot of banks got out of it 2, 2.5 years ago or cut down their exposure because of the risk-weighted asset diets that people are on or just the spring loaded that it can be. I mean they can fund up billions of dollars in a couple of weeks when we see a refi wave or if we see a change in consumer behavior for new purchases. And so as we think about it, we have held higher tier capital. And one of the reasons we've said we've done that is we can fund a mortgage warehouse.

We've had -- 2025 and 2024, had essentially flat mortgages in the industry, both originations and refi, and we picked up a couple of billion of additional average balance because we deepened those relationships with those clients while other banks were calling them and saying, hey, we're one getting out of the business or two. We're going to bring down your line. A lot of our existing customers called us and said, they typically have multiple banks, and the banks were calling and say, hey, we're going to take your line down. But when you need it, call us back. They don't like to have to call when something happens. They want to know that they have that line. So they called us, and we gave multiple updates on earnings calls and conferences about how many new clients we signed up. There was no fund ups during that time, but we took market share, and you can see it just in how '24 and '25 played out at the height of COVID and the refi boom, mortgage warehouse was a $7 billion, $8 billion business for us at the height of the summer season.

I think it's important that people understand, we have tremendous balance in our business. And as Hope has highlighted the mortgage warehouse business and the way we forecast. If net interest income is getting impacted by a falling rate, our mortgage business offsets that. So we have a tremendous balance. And while not ever neutral in interest rate sensitivity, we tend to be much more moderate than most and that gives us the ability to produce consistent earnings through cycles. It also probably says we're not going to have as high of highs or as low of lows, but we'll have those consistent performance because we have that balance in the business. And we think that mortgage warehouse business is an important part of bringing that balance. And that's why we were so excited to have the opportunity to expand share there.

And just on the -- sticking with mortgage. There's a lot of discussion around the administration being very focused on housing affordability, maybe purchases of MBS securities. I'm just wondering do you expect something to happen on the policy front because it could be meaningful for the business? I'm sure you've spent...

Well, I think the big determinant, as Hope pointed out in her comments, if you get that 10-year -- excuse me, the 30-year mortgage rate in that 6% area, it should pick up. I was actually traveling a couple of weeks ago, and I saw a billboard for 5% and 7%, 8%. So I smiled when I saw it. So it's more a rate-driven thing. And I think if the agencies buy a few hundred billion dollars worth of bonds, in mortgage-backed securities, that will help bring rates down.

So from a policy perspective, I expect that, that will have some impact. I don't know what happens in terms of a 50-year mortgage or any of that. But I do think at the end of the day, that if rates on the long end get -- come down, I think you're in a position where you'll see that refi activity pick up. I don't know how to think about a Kevin Warsh, chair of Fed and the size of the balance sheet because that's been a big determinant in the long end of the curve through quantitative easing. That might have some policy impact, too.

But at the end of the day, we're getting close and we're starting to see refi activity pick up a tiny bit.

Yes. Okay. And maybe I think the other countercyclical business, FHN Financial, just give us a mark-to-market in terms of -- it's been a great business working with sort of banks on their treasury portfolio management. Like when we think about what are the growth drivers for that business, remind us what are the one or top three things that matter to get sort of revenue growth going?

Well, it's -- first and foremost, it's volatility in interest rates, and that tends to drive a lot of activity in the business. If you have a falling rate environment, it tends to be good for the business, most importantly, having steepness in a positively shaped yield curve. So activity has actually been pretty good through the back half of 2025 and into early 2026. And we think in terms of what's likely to happen with falling rates on the short end of the curve and a little bit of steepness added with the 10-year in the -- I don't know where it is this morning, call it, a 4.15% area, then that's going to be good for that business. And we've seen activity in the first part of the year continue to be right in line with what we saw in the fourth quarter as we exited '25.

And Bryan, when you think about the business, are there areas where you're investing or adding product capabilities? I think a few years ago, you brought in like some public finance bankers on board. I'm just wondering how you envision that business evolving?

Yes. Our fixed income business is largely a distribution business. And so when we think about what we add, it is how do we add product or how do we add complementary services to that typical fixed income business. And it ebbs and flows, but it's a pretty balanced business between financial institutions and total return accounts. And we -- as you pointed out, we added several years ago, our government-guaranteed business with Coastal Securities, which is basically an SBA securitization business. We've looked at our fixed -- our municipal finance and try to be real targeted in where we can generate fixed income product through a municipal finance business. We look at are there complementary ways to provide transaction services for -- but right now, we're not looking at huge investments in that business. It really is, as I said, a transportation business where we want to match up buyers and sellers of fixed income securities. And the work that we do in terms of asset liability management, portfolio management, all of those are great ancillary businesses. And then we just look to complement it in small ways where we can.

Got it. I guess, maybe pivoting to the other side of revenue growth on NII. So obviously, you don't guide for NII. But I think Hope, you talked about on the call, the margin could be in 3.40s, relative to the 3.5% you ended the year ahead. Just maybe give us at least the puts and takes around is this sort of a cyclical high for the margin? Like are there aspects that will push the margin even higher, provided based on things we know today? And what's driving that modest compression that you expect?

Yes. I think in the near term, 20 -- for the current year, that's probably the high mark with what we know of where the economy is. For us, it's the lag in funding quarter-to-quarter. We have an asset-sensitive balance sheet. So when you see a cut at the end of September, our loans immediately reprice and our deposits that are on committed times, 30, 60, 90 days, you've got to wait for those to reprice. And so we saw it consistently in '24 and '25, but we saw margin compression in Q4 and then expansion in Q1. But single-digit basis points, it's more around the edges. Mortgage warehouse is a big bump to our margin when it funds up. We do have a large spread there. It's short term, you don't have the same impact to margin in a C&I loan as you do in our mortgage warehouse for a short period of time. So when we look at some of the volatility, we do tend to see our margin go up in the summer when that hits their peak.

And then deposit pricing. Deposit pricing, it went up so quickly, and we've kind of been zigzagging on the way down where we saw cuts in 2024, we were all able to bring our rates down. As soon as we saw no cuts in the forward curve, it's started to get really competitive and all of our deposit costs went back up. So you see pressure on both sides of margin in this type of uncertain environment with interest rates.

And I guess, maybe just on that point, how would you characterize the deposit pricing competition? I mean it's always competitive in the Southeast and in your markets. But just one, like, what's the environment like today? And then how do you go about actually growing relationship core deposits?

Yes. Deposits are always competitive. But as a CFO, Q4 is always really nice. For some reason, Q4 is not a competitive deposit environment. Everyone is out there going -- getting their Thanksgiving turkey and Christmas presence and they're not shopping for where can they get a new cash offer for a checking account. So we do typically see Q4 be a very quiet competitive quarter and spend like that for years.

We are now in the season where just about every day since deposit pricing reports to me, I wake up and somebody -- one of my bankers has sent me a screenshot of something that they got or their dad got or somebody else got that says, here's the rate that you could get. And I was showing the back, what's the terms? What's the minimum requirements? But deposits are competitive. And the Southeast, everyone I've seen talk about branch expansion at the conference so far has all talked about where they're building their branches, it's in the Southeast. The Southeast, I think, is the most competitive deposit environment in the U.S. right now.

So how do you solve for that? Like just from a longer-term perspective, do you just have a strong program on adding branches? And does that bring in core deposits? Or -- I know it's a long cycle, but...

Yes. I think you've got this long cycle, as you point out, with respect to deposits. And the fact that everybody has now got online banking, everybody has got mobile banking, anybody in this room can move money without getting out of their chair. It is a much more fungible market and the transparent market. And I think over time, you're going to see deposit costs continue to creep closer and closer to wholesale cost of funds.

From our perspective, it really is a commodity-oriented product, and we're going to differentiate with our banking centers, our level of service, our people and compete really hard. A big part of it is where you locate your banking centers, not only in mature markets and do you move in line with the customer, but also where you invest in new markets. So it's a combination of all of those things. And then it is being proactive in your banking centers to be out talking to customers, working in the neighborhood, being visible, things of that nature. But it is going to be a very competitive market, and I think it gets more competitive over time, not less competitive.

That's an interesting point. I share that view. I just think like I was talking to someone last night and I was like the share of noninterest-bearing deposits to total deposits for the industry is likely to be lower 3 years, 5 years from now, not higher, just directionally. When you think about this whole debate in D.C. around stablecoins, digital assets, is that something that you think impacts First Horizon? Are you paying a lot of attention to that or...

Well, I think it impacts the entire industry and by association, we would be impacted as well in terms of how stablecoins, cryptocurrencies and regulation plays out around that. I don't think it is that a real near-term threat. But I think over time, the competition will be good for our business, but it will have an impact in terms of deposits, deposit flows. And as I think about our investments, we look at how we work with a stablecoin tool. So we're working with an organization to think about how we put an FDIC insured stablecoin or digital token, digital deposit. So we're thinking about those tools.

But I think for the most part, the business case is still evolving and the regulation that falls around that will be important. And I think our industry has been very active. I think there was another meeting at the White House with the digital and cryptocurrency organizations and then the industry, and I don't know if there's any progress made, but there's at least conversations about how do we create a playing field that is level and allows everybody to compete on a level playing field, which I think is ideal.

Make sense. I guess maybe switching to your guidance for expenses, like flat expenses was remarkable. Like I mean, how do you keep expenses flat in a world where inflation is 3%, banker hiring, the bid for sort of talent. Just talk to us in terms of as you think about expense growth for the year, like where are the savings coming from and areas where you're investing?

Flat expenses is a commitment we made to our shareholders in 2023 when we held an Investor Day. We said we need 3 years to invest back in the company. We specifically mentioned a $100 million technology investment that we're going to use for fraud, cyber, new products, new platforms, but we've also been hiring bankers at the same time. We've been opening branches. And so we've really been in that reinvestment stage, and now we're seeing that level off.

And so we still have, as Bryan mentioned, we have multiple new branches opening this year. Our technology budget is higher this year than it was last year. But one of the things we really focus on is as we make every investment dollar, as we look at where are we going to do the next product investment, the next technology investment, we tie a business model to that. It's either cost savings or revenue growth, and we track that through. A lot of the technology advancements we have implemented over the last 3 years, they did come with cost saves. And so we're able to take some of that cost savings out of the bank and reinvest it. So it's not a cost-cutting initiative. It's a reinvestment initiative.

There are a lot of things that we've been asked about what would drive us to the higher or the lower end. So I have to say it is 0, excluding our countercyclical commission businesses. And so I think that is one that will have us above. But we have a healthy amount of investment in the bank this year. If you would talk -- we just had a big town hall and you talk to everyone, they're like, well, in this new system, these new products, when is this branch opening? And so we are in an investment period, being very disciplined about when and how we do that.

And remind us, when you look at '26, do you have a number in mind in terms of how many branches you expect to open? And on a net basis, do you think the branch count for the bank will continue to grow or remain flat because you shut some of the underperforming ones?

Yes. I think we'd like to open them a lot faster than we are if what Bryan is looking at me and our Head of Consumer. You'd be amazed how hard it is to find real estate in the Southeast. And then once you find it to build, how busy the construction teams are. It's one place I wish AI could fix because it's still almost 9 to 12 months to open a branch from the time we sign the lease. It's not -- the architects aren't moving any faster. The construction crews aren't. So we had, I think, about a year ago, so we were going to try to open 20 this year. Trust me, my team is working out there, but it is taking forever. We have about 9 leases, land that we've purchased and just getting through that process of getting them open is getting longer in the Southeast, not shorter. So we would like to open probably 10 to 20 a year in the next couple of years.

I was just smiling. It's probably one of those problems that more money can solve, but we don't want to be smart about it, too.

So it happens, if you have the CFO managed the corporate real estate. There's a balance there in our site selection and how quickly we get our buildings open sometimes.

That's true.

You mentioned AI. Just talk about like there's obviously a lot of discussion around AI and productivity gains and what it might mean overall to headcounts at banks. I'm just wondering, when you bring this to First Horizon, where are you using AI today? And just what do you think the technology to mean for the bank, for productivity, et cetera?

Yes, I'll start and Hope can help me out. But it's -- AI is an important topic for us. And in financial services and in our business, we've been using artificial intelligence through robotic processes for many, many years. And we are doing a lot of work with AI-based technologies. We're using it more in coding and doing the work that a software engineer might be over 3 weeks, doing it in 2 hours. And so there are lots of opportunities to automate process. We're looking at how do we automate credit underwriting and how we use AI in places like that. We're looking at agentic and how we use that in customer service operations.

And I think that we will continue to see not a wave of AI, but just sort of a steady pacing where AI gets more and more involved in our business. We're addressing it both ground up and top down. We have a process going on in the organization today where we've put together 10 teams just to take AI and really think about how we use it and how we approach it from the customer-facing side. So we're trying to think about it in a 360-degree view.

I think AI is one of those tools that will give us more capability. it may be the wrong analogy, but at least my analogy today is it will be a lot like the Excel spreadsheet or Lotus 1-2-3, if you go far enough back or a Word processor that it has productivity benefits and you can do more things, you can do more things faster. And I think what it will end up doing is enable -- it will free up people and allow us to do more for our customers and to be better at service and do all sorts of things. And while it will drive some efficiency in the organization, I expect that it will just put more capability in front of our customers, which I think is really desirable.

One of the places that we've been using it a lot and you just can't stay ahead of this fraud. And so AI is something we can build really quickly when we see a new fraud scheme out there, and you can start searching through client transactions or log-ins to treasury management system. And so that's a place that has an immediate -- and you can't wait for a new software code. You don't want a developer to have to test it and take months. You need a day or 2 to start catching these very complex frauds that are hitting the U.S. banking system. I would say, in recent last 6 months, that's the place that you're seeing that create an immediate impact. It's not saving anybody's job, but it's creating a better customer experience because we're able to see what is this fraud scheme and how do we close the back door using AI tools.

We're also using it with our client-facing marketing. The Salesforce was one of the early adopters of Agentic AI, and we quickly signed on for how do we get clients, marketing offers, next best offer for what we know they need, not just a splatter of, oh, everyone might want a mortgage using that data that you have on your clients and saying, hey, we think you might need a mortgage or you're reeligible for refi. And so we're already starting to see it on the customer side have immediate impacts that you all probably don't see, but we see internally. We have a monthly quality meeting, and it's amazing how AI is being used in our call center already in our fraud departments.

And do you see the legacy technology providers? You mentioned Salesforce obviously was ahead of the curve here. But when you think about the sort of the core infrastructure providers at banks, like do you see them having those offerings today to sort of provide to the banks? And is that sort of a governor for certain banks in terms of how quickly they can implement this or.

Well, I think it's been interesting to be a third-party observer of what's going on in the software space over the last few weeks. And I don't think that organizationally or as an industry, we're going to be in a place where we're updating our core code every 3 weeks. I think cycles will get shorter. And I think AI will help our software and our core providers provide faster, greater tools and capabilities. And I do think cycles will get shorter. But I don't think we're all going to start with -- let's just start rewriting all our code and build it all internally, because when you're dealing with millions of transactions on a daily basis, you got to make sure that they execute precisely. And these big mainframe-based systems and the technology that we use has been proven out over many, many years.

So I think it will be a way to enable us to shorten cycles and to get better. But I don't think it's going to be that we're all just replacing all and writing our code over every week, or every 6 weeks, or whatever.

Got it. I guess I just want to go back to something you've talked about, I think, $100 million PPNR opportunity within the footprint. Just give us a sense of what would be the drivers of that PPNR growth? And what's the time frame we should be thinking about where you monetize that?

Yes. We've talked -- we said $100 million plus at the beginning sometime last summer. And we've talked about that we still, at the end of the year, believe there's at least another $100 million of profitability opportunity. A lot of that comes from the work that we have done in the last 1.5 years just in communicating with everybody in the organization, how we want to go to market. And that means that we're focused on how do we deliver better for our customers and how do we bring products and offerings together.

So capitalizing on that $100 million opportunity is going to be hundreds, if not thousands of small things across the organization, making sure where we have single product loan customers that we're introducing treasury management, where we have opportunities to introduce private client or wealth management folks to our consumer customers or our commercial customers, making sure that we're pricing and collecting fees for the work that we're doing in terms of a treasury management product set or whatever.

So it's -- Hope and her team have a very big spreadsheet, but we know where these opportunities are, and it will take hundreds, if not thousands of people executing on it. And it's not going to be done overnight. It's a progression, but we think there is a lot of additional profitability that we can drive out of our existing business. And that's why we're confident in that -- in saying that we set the 15% ROTCE goal and that we feel confident that we can be greater than that over time because we can drive more profitability out of that balance sheet.

And I was going to ask about that. So when we -- I think we're more or less there in the back half of last year on the 15%. As we think about the 15% plus, like where do you think the franchise, like we talked to banks today, and it's actually mind-boggling like the return targets in the high teens, 18%, 19%, 20%. I'm just wondering, when you look at the franchise, what you've talked about, the growth opportunity, operating leverage, like how quickly could this be something that's more closer to high teens than 15%?

A lot of our $100 million PPNR, as Bryan talked about, is in growth in fee income, which is something we have not had the last few years. A lot of our $100 million 3-year technology investments went into new products, new platforms. The two we've talked about before is we partnered with LPL in Q3. That was an investment to get on their platform, have additional products. So now we have wealth clients and we have new products we can sell them. Treasury management, we have added multiple feature and functionalities that we can go back to our existing clients and say, hey, we now also offer this, and that comes with a fee. So when you talk about growing the fee income side of the business, you don't hold any capital against it. It's a big broad stat projection.

We're also, as Bryan said, on our earnings call, we're focusing on profitability at renewal. We have hurdles for client profitability. If it's loan only, it has a higher hurdle rate. And in our CRE business, we've increased the margin double digits over the last year just by partnering our in-market bankers with our CRE specialists that understand the market and can do things like increased origination fees, unused line fees. They just know that market so well. They know where the CRE market is moving that they're able to create existing clients with more profitability at renewal. And all of that just adds up.

We have -- to your point about leverage, we think over time that we have the opportunity to bring our CET1 ratios down and create greater leverage. We think through the cycle, we need to be in that 10% to 10.5% range. We're now targeting to get to 10.5%, whether it's the first quarter or the first half of this year, we'll see. But we think we can bring those levels down.

And as I think as the industry resets more broadly speaking, with a regulatory framework that brings capital levels down, we would get comfortable that we can come closer to that 10% area because we think the risk profile in our balance sheet, we have very strong capital levels that we're in that 10% to 10.5% area.

And just on that, Bryan, from a regulatory standpoint, do you -- like are you expecting or are you anticipating anything from Governor Boman and the Fed and others around some explicit guidelines around the $100 billion asset threshold? I'm just wondering what can the regulators say that would make you feel incrementally more comfortable about operating at the 10% CET1?

Yes. I think it's a combination of things. And I think that the regulatory bodies, it's not just the Fed, but the Fed, the OCC are really starting thinking about, okay, how do we handle the capital ratios at the largest institutions, and that will trickle through the industry. And so I expect that as on a whole, you'll see with changing the supplementary leverage ratio and things of that nature, you'll see capital levels trend down, because it does appear that the industry has gotten to such an overcapitalized level that I think there's opportunity to bring that down. So in the context of a macro change there, I think that's helpful for us, and we have the opportunity to bring our capital ratios down too.

The other piece of your question sort of hinted at the $100 billion threshold. And I think over time, whether it's through legislation, I think something passed in house financial services this week that would take it to $150 billion. I think that the regulatory bodies will work through the tools that they have really embedded in the 2018 legislation to reset or think about where are the right thresholds. And I'm much less concerned today about the $100 billion threshold because I do believe that, that will be moved up and/or that you'll see that there will be a different way of thinking about $100 billion or $150 billion. And so I think the cost of those regulatory bright lines is likely to be significantly lower going forward.

Got it. And I guess -- so when you think about capital deployment, the stock performed quite well. Just when you think about buybacks, you have a healthy program in place. But how do you think about buybacks relative to stock valuation? Like does that make you take a pause at some point?

Well, we're always trying to be thoughtful about the relative price that we're paying. But we start first with do we have organic growth opportunities and where we have those opportunities, we're going to capitalize on those first. So we're always looking to invest in the business.

And then we think the buyback is an important tool. Last year, we bought back just under $900 million worth of stock. We returned about $1.2 billion in equity. Beginning of this year, we -- at our Board meeting in January, we increased our quarterly dividend by $0.02 a share from $0.15 to $0.17. And we have about $1 billion of remaining authority.

So when you put all of that together, one, we feel good about our capital generation and what we will do. We feel good about our opportunity to deploy it in our business. And we still believe that we will have excess capital that we can return through dividend and stock buyback. In terms of absolute valuation, when we look out into the future and think about what we can deliver in terms of improved profitability, we think that attractive -- it's still an attractive time for us to repurchase shares, and we will continue to use that opportunistically to repatriate capital.

I don't mean to cause any trouble, but just talk to us about bank M&A, right? Like you're seeing a lot of deal activity happening around us. One, just from a scale standpoint, does it matter if you are $30 billion larger or not? But are there interesting opportunities strategically that are out there that would make sense?

Yes. M&A is going to -- it's been around the industry and it's going to be around the industry. And it's not a priority for us. If anything, we would just fill in markets. We think there is a whole lot more opportunity for us in being focused on delivering $100 million of incremental profitability. And as you highlighted in your first question or two, our organization has been through a lot of transition over the last 5 years. And for us, the focus on execution and delivering value for our shareholders, making sure that we get maximum profitability out of our existing balance sheet franchise is a much more important tool or important objective for us. So that's where our focus is today.

That makes sense. And one last question. You've been through a lot in the last 20 years. I think there's a lot of optimism today around just all things around growth. When you think about credit quality, anything to either of you like that concerns you on credit that we should be watching for?

Go ahead.

Our credit has held up really well. When we look at how we performed the last couple of years for charge-off, where our outlook is for this year, we look at a through-the-cycle lending. We have a disciplined credit lending. We were stressing our loans when we were near 0 interest rates, all of our loans had a plus 300 basis points. Our bankers were screaming. This will never happen. And when it did happen, our clients were able to maintain that. So we don't see any geographic concentrations we have issues with any industries. There's always even in the good times, businesses that hit rough times, but our credit has held up really, really well, and we anticipate that continuing.

We haven't had any big cycles, Ebrahim. But I recognize that there was a long period of time where people looked at our credit performance in 2007, 2008 and sort of extrapolated that out. But if you look at our credit performance through the many cycles that we have had, MI&I cycles that we have had over the last several years that we have really restructured the way we think about credit. Our teams have done a fantastic job thinking about risk and diversification. And I'm very, very confident that our credit performance is going to be as good or better than most through, almost any cycle.

So I'm excited about that being something that is -- positions us to move fairly quickly as we see opportunities in the marketplace even in the face of cycles.

All right. No, we're out of time. So on that note, thank you, both of you.

Thank you Ebrahim. Thank you for having us.

Thank you.

Hello, everyone, and thank you for joining the First Horizon Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations to begin. Please go ahead.

Thank you, Lucy. Good morning. Welcome to our fourth quarter 2025 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 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 other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, Page 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, and you should understand that we are not obligated to update it.

And with that, I'll hand it over to Bryan.

Thank you, Tyler. Good morning, everyone. Thank you for joining us.

In 2025, we showed significant progress in delivering value for our clients, associates and shareholders. We delivered increased preprovision net revenue and return on tangible common equity, hitting 15% in the back half of 2025. Loan and deposit trends were solid, and we improved balance sheet profitability through a better loan mix and pricing, disciplined control of deposit costs and tighter integration of deposits within our client relationships.

One example driving improved profitability is the year-over-year improvement of yields on market-based commercial real estate lending for new or 2025 originations by 34 basis points. In 2025, we also returned just under $900 million of capital and stock repurchases and just over $300 million in dividends.

With more clarity around economic conditions and regulatory trends, we believe we can continue to return additional capital to our shareholders, while continuing to invest in growth opportunities. As you will see in our slide presentation, we are optimistic about our ability to improve profitability and continue to grow earnings in 2026.

I'll now hand the call over to Hope to walk through the results of the fourth quarter in more detail and provide some closing comments at the end of the call. Hope?

Thank you, Bryan. Good morning, everyone, and thank you for joining us today. We ended the year with a strong fourth quarter that includes earnings per share of $0.52, net interest margin of 3.51 and 2% loan growth.

Starting on Slide 8, we walked through some of the drivers of our approximately $2 million of net interest income growth as well as our net interest margin performance. Our margin compressed by 4 basis points. But excluding the impact of the Main Street lending program accretion discussed last quarter, NIM expanded by 2 basis points, even with our slightly asset-sensitive balance sheet.

The largest benefit to both NII and margin was deposit pricing, as our average interest-bearing costs declined by 25 basis points. Additionally, strong growth in loans to mortgage companies added to NII. On Slide 9, we cover details around our deposit performance in the quarter. Period-end balances increased by $2 billion compared to prior quarter. The average rate paid on interest-bearing deposits decreased to 2.53%, coming down from the third quarter average of 2.78%. We have maintained a cumulative deposit beta of 64% since rates started to fall September 2024. Our interest-bearing spot rate ended the quarter at 2.34.

On Slide 10, we cover our quarterly loan growth. Period-end loans increased $1.1 billion or 2% from the prior quarter. Our largest increase came from our loans to mortgage companies, which increased $776 million quarter-over-quarter. While fourth quarter is not traditionally a high watermark for this business, we saw a pickup in the refinance market, which resulted in approximately 1/3 of activity from refinances, up from approximately 25% in the recent quarters.

We also saw excellent growth across our footprint in the rest of our C&I portfolio with period-end balances increasing by $727 million from prior quarter, as origination volume increased quarter-over-quarter. Within the CRE portfolio, the pace of paydowns slowed as the decline of period-end balances improved versus the prior quarters with a $111 million reduction. Additionally, we saw a slight increase to commitments in our CRE portfolio during the quarter, providing momentum entering 2026.

Commercial loan spreads remain consistent, generally mid 100s to upper 200 basis points.

Turning to Slide 11. We detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation. The largest increase for fee income comes from our service charges and fee lines which is largely driven by $4.4 million in income related to elevated activity in our equipment finance lease businesses.

On Slide 12, we cover adjusted expenses that excluding deferred compensation, increased $4 million from prior quarter. Personnel expenses, excluding deferred compensation, increased by $12 million from last quarter driven by $8 million in incentives and commissions, which primarily consisted of annual adjustments to bonuses impacted by hitting the high end of our revenue targets for the year.

Outside services increased by $16 million, which includes project costs for some technology and product initiatives and increased advertising expenses in the quarter. Our noninterest expense declined primarily related to the foundation contribution discussed last quarter as well as normal fluctuations in customer promotion costs and marketing campaigns earlier in the year.

Turning to credit on Slide 13. Net charge-offs increased by $4 million to $30 million. Our net charge-off ratio of 19 basis points is in line with our expectation and recent performance. We recorded no provision for credit losses in the fourth quarter and our ACL to loan ratio declined to 1.31, on broad improvement across our commercial portfolio and payoff of non-pass credits.

On Slide 14, we ended the quarter with CET1 of 10.64% as buyback activity and strong loan growth, which included high loan-to-mortgage company growth, lowered our period end CET1 levels. During the quarter, we bought back just under $335 million of common shares, bringing our full year total to $894 million. We also announced a new repurchase program of $1.2 billion at the end of October, and we currently have just under $1 billion of authorization remaining.

On Slide 15, we walk through the objectives and metrics within our current 2026 outlook. We once again expect year-over-year PPNR growth with mid-single-digit balance sheet growth and positive operating leverage. Our total revenue expectations range from 3% to 7% growth year-over-year, which accounts for a variety of interest rate and business mix scenarios.

As we have mentioned previously, our expense outlook remains flattish with the exception of incremental incentive expenses associated with higher countercyclical revenue; continued improvements to market conditions for our fixed income, consumer mortgage and loans to mortgage company lines of businesses could drive higher revenues and associated personnel expenses.

We expect to achieve this while still making key investments in our businesses, including technology, personnel additions and new branches. Our net charge-off expectation of 15 to 25 basis points reflects our continued confidence in our underwriting standards and credit processes. We expect taxes to be between 21% to 23%, similar to 2025.

Lastly, our near-term CET1 target remains at 10.75 with the level fluctuating approximately between 10.5 and 10.75 with loan growth throughout the year. We will continue to have conversations with our board about potential timing for lowering that target further in line with our intermediate-term inspections of 10 to 10.5.

I'll wrap up as we turn to Slide 16. I am extremely pleased with the execution of our teams in the fourth quarter and throughout all of 2025. We once again operate at 15% adjusted ROTCE this quarter and our goal continues to be sustaining and exceeding this level. We are continually managing capital and credit to ensure that we maximize returns to shareholders as displayed this quarter with capital deployed into both loan growth and share buybacks.

Our teams are focused on execution and delivering on our profitability objectives, including the more than $100 million in revenue driven incremental PPMR that we have discussed in the past. We made early progress on this in 2025 and expect the impact to continue to grow in 2026 and 2027.

With that, I will give it back to Bryan.

Thank you, Hope. I'm proud of the progress we made in 2025 across many fronts. During the year, we instilled our strategic plan into a 5-page framework to provide clarity for all of our associates about how we differentiate in the marketplace and create broad, deep, long-lasting client relationships. I believe this alignment will continue to help drive consistent execution across our organization, resulting in exceptional experiences and outcomes for our clients and our shareholders.

As we look into 2026, our priorities are clear: serve our clients well, grow profitable relationships and deliver on our financial objectives. We will capitalize on growing client confidence about the economy with continued loan growth. We see positive signs for growth in our current pipelines, especially in our commercial lending areas. I'm confident that our diverse business model and robust footprint position us to meet our revenue growth targets through a variety of economic scenarios.

As we stated in our 2026 outlook, we also remain focused on expense discipline and efficiency while also continuing to invest in technology and tools that make our associates more effective and deliver greater value for our customers.

We talked in 2025 about our $100 million-plus PPNR improvement opportunity. We made initial progress in 2025 by improving profitability of the balance sheet. We still see $100 million in additional opportunity and expect to make significant progress on that in 2026 and 2027. This profitability will be driven by deepening client relationships in products like treasury management and wealth management, leveraging our banker expertise to ensure clients have the right products for their needs, ensuring our pricing reflects the value we deliver to clients and ensuring we maximize the value of our footprint with our talent and distribution models.

First Horizon has a lot of momentum going into 2026, and I'm excited to see our associates capitalize on those opportunities ahead. Our team put forth a great deal of effort in 2025. Thank you to our associates for their work this past year and to our clients and our shareholders for their continued confidence in our company.

Lucy, with that, we can now open it up for questions.

[Operator Instructions] The first question comes from Casey Haire of Autonomous.

I wanted to start on the revenue outlook. The 3 to 7, that's about $135 million of revenues. I know it's tricky, but -- if you could just take us through your base case and what are some of the big wildcards to think about, so we can make our own assumptions on tightening up that revenue outlook.

Happy new year, Casey. Thank you for that question. Our base case kind of middle of the range is the current forward curve. So as you think about looking at the low and high end range, we've got to think about where rates go, how quickly we might see rate drop versus the current forward curve and then also loan growth.

And as we've said, we have mid-single-digit loan growth in here. And so if we were able to exceed that, you'd be at the higher range, and of course, our countercyclical. The Wall Street Journal just reported this morning that December home buying was strong. I made a comment in my prepared remarks that we saw refinance pick up for the first time in multiple quarters. So as we start to see some of those countercyclical pick up and we hit our loan growth target or higher, we end up on the higher end of that range.

Very good. And then just on the expense front. I know you guys are kind of reiterating your your flat outlook for this year. But I guess trying to understand what the -- obviously, I don't think that would be sustainable going forward. I guess what would the expense growth be had you not had these past years of heavy tech investment and digital infrastructure investment? Like I'm just trying to get a sense of what would be -- where does the expense growth normalize to going forward after this flat year in '26?

When Bryan and I sit down and talk with our Board about where we want to go in coming years, we always start with we want positive PPNR, and we really start with a base case of expenses being in line with inflation. You have wage inflation, you have contract inflation, so we start with that.

And then to your point, we did have some things that were kind of multiyear investments that are running down. But think about our normal growth in that inflationary area, which would be 2.5% to 3% currently.

The next question comes from Ryan Nash of Goldman Sachs.

I hope you mentioned embedded in your revenue growth expectations is mid-single-digit loan growth. Maybe just unpack that and talk about some of the key drivers across the products. How are you thinking about inflection in commercial real estate? What's baked in for loans to mortgage companies, and obviously, any other areas of growth in the broader C&I area?

I'll take those one at a time, Ryan, and happy new year. First, as we look to mortgage warehouse, we are expecting it to pick up. We had -- if you look at our trend page, you see it's the highest quarter we've had in 5 quarters. Seasonally, Q4 pays down, and we didn't see that. And with the pickup in refi, we think that we will -- our base case assumes that picks up in a similar consecutive fashion. When we get to the higher side of our guidance, obviously, you're looking at a double-digit mortgage warehouse growth in the lower end of our guidance would be flat or lower than this year.

C&I, we have great momentum coming into the year. We talked on our last earnings call about being one of our highest quarters for new originations. Q4 had additional strong originations. So we think C&I has hit that inflect point. We're going to continue to see growth in 2026.

CRE started to stabilize this quarter. We've seen good new production, but we do a lot of large construction CRE. It takes time for that to fund up. We've always had that spring loaded balance sheet, Ryan. So I do think it will stay stabilize and how quickly we can grow and how quickly our customers can get their projects running, get the supplies they need and really start to hit that stride in the CRE market that's been slowed down in the last couple of years.

Got it. Maybe as a follow-up, given the expectation for mid-single-digit loan growth, I'm assuming you're expecting some decent deposit growth. Can you maybe just talk a little bit about deposit growth expectations? What you see as the key drivers? And in a better loan growth environment, do you think you could sustain this 64% beta for the remainder of the rate-easing cycle?

Yes. Loan growth is always higher in our targets that -- loan growth is always lower than our deposit growth. So the targets that we give to our businesses is for that not to be offset and create a higher loan-to-deposit ratio. With that, we have a lot of initiatives that we've done in the past 12 to 18 months, primarily our new treasury management system that -- and additional products that we have delivered in the second half of the year that allows us to deepen relationships with existing clients and also go-to-market with clients that we maybe didn't have everything they needed for their business previously.

We've seen great momentum in treasury management in the back half of the year. Also, we've mentioned before, we've hired a new Head of Consumer. We had -- you see our advertising costs were slightly up and our cash payments and other noninterest expense were up or have been up in the second half of the year. We're seeing great momentum with our new-to-bank offer sustaining and deepening relationships in that space. We're opening new branches this year, and I think there's a lot of upside opportunity in our consumer franchise.

Your comments about deposit costs. I would say the #1 thing that concerns me there outside of competition, as we always talk about, is what happens with the Fed's balance sheet. There's some congressional testimony about shrinking the Fed's balance sheet further. And so I really think it's a macroeconomic question as to what is the liquidity in the system in the coming year that will drive deposit prices much more than competition right now where I'm sitting.

Bryan, don't know what you'd add to that, but there's a lot of uncertainty right now.

Well, I think you hit the key point. We do have opportunity in treasury management penetration. We have a very strong, stable base there, and our system is extraordinarily competitive, and we're making very good progress in terms of working with customers to increase that penetration. I think the opportunities across our footprint to continue to expand our retail consumer banking model, as Hope pointed out, are very positive.

And deposit betas, we're going to manage within the context of the market. We're going to be competitive. We think that the Fed is going to either contract or expand its balance sheet, competitors are going to do this, that or the other thing, and we're going to pay attention at a very granular level and be competitive in the marketplace and grow the business and do it in a way that is thoughtful and built around long-term relationships and partnerships, and I think we're well positioned for that.

The next question comes from John Pancari of Evercore.

Wanted to see if within your revenue guide, if you could possibly help us unpack it across how you're thinking about net interest income trajectory versus the fee side? I mean on the net interest income side, it looks like you grew net interest income about 4% in 2025. It looks like it may be a somewhat slower pace in '26, just maybe given less margin upside.

But I wanted to see if you could maybe help us frame it? Is it low single digit that's reasonable or mid-single for NII? And then as you look at fees, if you can just give us a little bit more color on the ADR trends that are -- that you're seeing here and how that could play out in the cap market side and how that influences your fee growth expectation?

John, thanks for the question. On fee income, obviously, the largest variable is, as I mentioned earlier, mortgage refinance where we don't put something on our balance sheet. We do, do originations that we sell. So if we can get that gain on sale back up to what it was 2, 3 years ago, we saw a more normalized resale activity. .

FHN Financial had a very strong second half of the year. If you look at the deck and you look at the fourth quarter ADR, we had mentioned that we thought 3Q may be an inflection point. And in the beginning of Q4, we were starting to see that come back down and it's pretty flat quarter-over-quarter. So I think if you think about fee income, think about the core line items growing consistently with this year, but the upside will gain on sale for mortgage in a refinance opportunity as well as FHN financial upside.

On the NII, as Bryan mentioned earlier and I did as well, deposits are hard to predict exactly where we're going to land on deposit betas this year. I think that could have a big swing on that. And then loan growth, we had really low loan growth in our industry for 2 or 3 years now, and there is a pent-up demand out there. So I believe we can get certainty on rates, we can get certainty on the economic environment, we're going to see that pick up for our industry.

What I can't handicap right now, John, is that earlier in the first half of the year or the second half of the year and the average balance matters for NII more than that quarter-over-quarter. But I feel really strongly that we are well within that range. You can run a set of scenarios, and we will be within that revenue guide regardless of what happens in the macroeconomic environment this year.

John, this is Bryan. I'll add to Hope's comment. We're we're very intentional in not breaking apart the revenue projection and the net interest income of fee income simply because that we have a very well-balanced business model and that we have the countercyclical businesses. So we have businesses that will pick up, if rates move down significantly.

We have businesses that will do very well, if rates move up and the 2 balance each other out. And so when we build out a model looking at 2026 or 2027 and beyond, we start with the premise that all models are wrong, some are useful. And so we look at it in the context of we feel good about the balance in our business and that if you push down here, this will pop up. But at the end of the day, we feel confident in our ability to deliver revenue growth within the range that Hope has highlighted for you.

Got it. All right. I appreciate that. And then separately, Brian, I guess if we could just go to M&A. Just want to see if you can get some of your updated thoughts around potential whole bank M&A.? A lot of attention, obviously, your shift in your comments last quarter. How are you thinking about the decision to potentially step in here and consider an acquisition? A, given the potential that the regulatory window could ultimately close? And does that influence you? And then the backdrop of deals accelerating, but most importantly, what it means for you in terms of if something compelling financially or strategically comes up?

Yes. Thanks, John. What I don't worry about the regulatory window, first and foremost. I think that during the the duration of the Trump administration, you're likely to see the regulatory window open, your regulatory infrastructure is in place now, and they have multiyear appointments. So I don't worry about that.

When it comes to thinking about our business and preparedness, I think, as I highlighted in the third quarter call, we have the ability to integrate now, but our priorities are focused on the things that we've described in our prepared comments, which is penetrating our customer base, delivering on this the strategic document that we have laid out for our organization, driving the incremental $100 million of potential PPNR growth.

And in that context, if we have the opportunity to fill in our branch franchise or deposit base by doing something small, we would consider. But I would tell you, like I did 90 days ago roughly, that's not a priority for us. Our priority is delivering higher returns, increased profitability and leveraging the franchise and the footprint that we have.

The next question comes from Bernard Von Gizycki from Deutsche Bank.

So you have a 15%-plus sustainable ROCE target over the near term. You hit the 15% mark for the past 2 quarters. Are we at that sustainable 15% now and moving to the plus part of that or is there a time frame like the end of the year, you feel like you can declare you hit the 15% in a sustainable manner?

Bernard, good morning. Welcome. I think we've hit that sustained number on a go-forward basis. It doesn't mean a single quarter couldn't dip under that. I talked in my prepared remarks about how the CET1 could come down lower quarter-to-quarter, as we look at loan growth. But on average, I do think we've hit that inflection point where we can deliver in the 15-plus percent ROCE target ongoing. But that's not an every quarter number, I would say, is an average. .

In the near term, longer term, that will be the minimum, but we've had a lot of uncertainty in the macroeconomic and a lot of things at play right now that could slightly dip us underneath that in 2026.

I would add that the accounting around AOCI and things like that can move it in intra-quarter in a quarter or 2. But we feel very good about the sustainable nature of the progress that we've made over 2024 and 2025 in terms of improving profitability. And so I think we are at a sustainable level. It may fluctuate up a little bit or down a little bit.

But at the end of the day, I think what we've delivered in improved profitability is sustainable. And as we have, in the past several quarters, the opportunity to return capital and manage our capital levels in line with peers is an opportunity that would further enhance that. So we've made good progress, and I think we're in a good place to increase that profitability as we go forward.

Maybe just on credit. So I know in the release, you noted the 11% sequential reduction in criticized and classified during the quarter. The resulting 0 provision and the $30 million reserve release. How are you thinking about your reserve build from here, just given expectations on the path of criticized and classified, the expected 15 to 25 basis points of net charge-offs as well as just expectations for mid-single-digit loan growth for the year?

Yes, this is Thomas Hung. I'm happy to address that question for you. Overall, we've had a very strong momentum throughout all of 2025 in terms of working through our non-cost book. And as you noted in the fourth quarter alone, we had over $700 million of our non-cost resolutions and there's a good mix of both payoffs and upgrades.

On the whole year, that number added up to $2.2 billion. And so with the strong momentum we've had in those non-cost resolutions, that's why we have been able to have the other reserve releases we've had in the last couple of quarters.

In terms of looking ahead, a lot of other factors will impact what ultimately our reserves are including broader economic outlook, the amount of loan growth we have and also the mix of the businesses. What I'm happy about is the momentum that we have in terms of how we've continue to be able to work down our non-passport while maintaining very strong net charge-off performance. In terms of forward outlook on reserves, like I said, there's a number of factors that could change less, so it's harder to say.

Bernard, this is Bryan. I'll add to Tom. CECL model, it implies an awful lot of science, but there's a tremendous amount of more involved in it and the assumptions that are made about the economic scenarios. And if you step back from it and you look at our reserve levels today, we have something in the nature of 6 to 7 years of reserves set aside at the current run rate.

So we believe that we're conservatively positioned. We try to take a balanced view of the economy, and we don't look at it as all up or all down. But I think given the improvement that we've seen in C&C and the trends in the balance sheet, we think we're in a very good position for the reserve levels that we have and that our credit trends as highlighted in our outlook for 2026 are likely to be in the same area that we've seen over the last year-or-so.

The next question is from Jared Shaw of Barclays Capital.

Maybe circling back on the capital discussion. When we look at that $1 billion-or-so of of additional buyback authorization, what's the appetite for utilizing that over the course of '26 with the backdrop of growth? Should we expect that you stay active sort of at similar levels and see the capital ratios just continue to move lower?

Yes, Jared, this is a topic we work with our board on. So I don't want to get in front of that, but they have given us a substantial authorization, and we have a fair amount remaining under and we -- as we said in the past and as Hope has highlighted here, we will continue to talk about where the economy is, where our balance sheet is, how do we look at capital levels in the context of the peer universe and what's going on in the regulatory environment.

Then having said all of that, I would say comfortable reaffirming what we've said in the past, which is we believe long term that we can operate our balance sheet in that 10% to 10.5%. And while you might get a spike on quarter in mortgage warehouse lending or you might get it for 1 year, 1.5 years, we're comfortable bringing those capital levels down over the longer term. So that's a long way of saying, one, we want to deploy our capital in organic profitable growth with our customer base.

And if we don't have those opportunities, we will be disciplined. And as we highlighted a couple of different ways, we returned $1.2 billion of capital in 2025, and we'll look for opportunities to be opportunistic, but we will participate in buybacks when appropriate.

Okay. And then maybe just shifting over to the loan growth side. C&I loans, as you pointed out, had a really good quarter, but utilization rates have been pretty much flat over the last year. How are you -- from your conversations with customers, what's sort of the appetite for bringing that utilization rate up over time? And is there any expectation in your guidance that, that utilization rates move higher or could that just be potential upside if you see increased optimism from existing lines?

Yes. I'll start and then Tom can help me. I think customers are generally still pretty optimistic. We see it in our pipelines. And the momentum in the economy appears to be very, very good today. I think as uncertainty emerges, whether it be Venezuela or Iran or oil prices or whatever the uncertainty could possibly be, people will take stock, but I think people are generally biased for growth.

And so I expect, generally speaking, the C&I utilization will improve. I think the other dynamic, Hope talked a little bit earlier about loan growth and loan growth opportunities. In '24 and '25, we did a fair amount of work rebalancing. I mentioned improving the mix and profitability of the balance sheet. We also rebalanced where we were participating and we got out of a number of what we view as unprofitable long-term participations and things of that nature. So I think our balance sheet mix is set to be more profitable and to grow in a more sustainable and consistent level.

Tom, anything you want to add?

Yes, I would just add sighting with your question on utilization rate. We certainly watch that closely, but I think the drivers behind changes in the utilization rate is really kind of more telling because there can be positive and negative reasons for us that utilization rate going up and down. If people are optimistic and looking to develop, we can see that go up. They can also go up in our periods of uncertainty, and so that's why I'm really more focused on the drivers underneath that number and what's driving it.

I would also add, though, just overall, what we're seeing across the board is increased momentum in our pipeline. Hope and Bryan has both mentioned, C&I as an example. What I would point to there is, what I'm encouraged by is the increase in pipeline is coming from a pretty diverse set of businesses. We've seen it across our regional bank.

We've also seen it to varying degrees in our specialty business units as well. And so this isn't concentrated in any one area, but it's more of a broad increase in pipeline that we've seen.

The next question comes from David Chiaverini of Jefferies.

I wanted to ask about the net interest margin outlook. Last quarter, you had guided to the high 3 30s, low 3 40s. Clearly, you outperformed that. It sounds like pricing trends are good on both sides of the balance sheet. How would you frame the outlook from here?

I would say our outlook is still similar in that 3 40 range, there's a lot of timing and art on getting it exactly right in a quarter and an outlook. Specifically this quarter, we had in my prepared remarks, I discussed the uptick of growth in mortgage warehouse and the increase of NII there really helped our margin sustain quarter-over-quarter.

Deposit costs, we're really proud of how they -- we were able to work those down. I think we exceeded our expectations when we were on this call last quarter, -- so I don't see 3 50 as the go forward. I really think we're in the mid-3 40s kind of some variation quarter-to-quarter.

Great. And then on the $100 million of incremental PPNR, you've been talking about that for a few quarters now. Curious as to how much of that has been achieved thus far? And then perhaps the split between 2026 and 2027 of achieving that $100 million?

Yes. We have been talking about it since roughly the middle of the year, and we talked about it in the context of $100 million-plus. And we've said the last couple of quarters that we continue to make progress. And we look at the opportunities across the business. It is clear to us that there are opportunities for greater penetration of treasury and wealth that I mentioned earlier in the call, greater opportunities for ensuring that we introduce broader relationships.

So there are huge number of opportunities. It will build over '26 and into '27. So if you look at it mathematically, there's going to be more in '27 than there will be in '26. But we think we made significant progress. In '25, I mentioned the improvement in market investor relending and spreads there by connecting our professional CRE business with structure and pricing that we're doing in market investor CRE. And things like that will build over time.

So I'd expect you'll see some in 2026, you'll also see some in 2027. I would tell you, as it relates to 2026, we have it built into the outlook that Hope has laid out to you. So it is embedded in that outlook.

I'll add to what Bryan said and repeat. Our goal is sustainable momentum. And you're going to see that build quarter after quarter. You're not all going to sudden see a spike. And so as you continue to see our earnings momentum, you continue to see our revenue growth really in line or outpacing our loan growth, you can attribute that to continuing to deepening these relationships. But it will build quarter after quarter. And as Bryan said, '27 will build on '26.

The next question comes from Peter Winter of D.A. Davidson.

The outlook for expenses is flattish for '26, and it does imply expenses will be down quite a bit from the fourth quarter level. Just what are some of the levers for lower expenses versus 4Q? And what do you think is a good starting point for the first quarter expense?

We have elevated in Q4 due to the higher revenue. So if you look on the increased commissions quarter-over-quarter, that is another strong quarter, but also at year-end, there's a series of true-ups that every company does. And so I would look at that run rate and say what is it consistently going to be in Q1.

Marketing and advertising is seasonal, and so it does tend to be slightly down in Q1 and then higher in Q3 and Q4 at times. So I'm not going to give you an exact number, but I think when you look at the range and look at a glide path, take out the onetime items that we've commented on in our presentation. We also had a lot of technology projects that completed in the back half of this year, and that is part of what we're using now that that run rate is starting to come back in line to reinvest in branches and hiring.

Got it. And then if I can ask, I realize it's still early, but are you starting to see any disruption in your markets from the recent M&A deals? Any opportunities to hire bankers or bring in new customers or those conversations starting?

It is still early, and best I a can tell there's no real integration work going on right now in terms of systems conversions and things of that nature. But we have seen opportunities to recruit. We're actively recruiting as we always do across all of our footprint. And so we do believe that over time, we will have an opportunity to continue to bring talented bankers and support folks all across the organization onto the platform.

And whether the disruption drives that or otherwise, I think our business model, our focus, our culture has been an advantage and will continue to be so.

The next question comes from Michael Rose of Raymond James.

Just 2 quick ones for you. Just talking about the commercial real estate expectations. Obviously, down Q-on-Q, down year-over-year. You got to have, in theory, a couple more rate cuts, paydown activity, probably still pretty healthy. Do you expect that business to inflect this year? And is that an area of potential growth as we move later into the year? Or does the headwinds from payoffs, paydowns from lower rates, just kind of persist through the year?

Yes. Michael, this is Thomas Hung here. I think we can reasonably expect to see an inflection in our CRE business this year. As Hope alluded to what we do in CRE does skew a lot towards construction. And hence, we have more of a spring-loaded balance sheet there. Given the lower amount of construction in the last couple of years, that's why we have seen a decline in balances in that business.

However, that has started to pick up. I mentioned pipeline momentum in the C&I business. I should also mention there's good pipeline activity in our CRE business as well. If I look at our CRE pipeline compared to even last quarter, it's up pretty meaningfully. And you mentioned, especially with the rate decreases that have been happening and there's expectations for further rate cuts that really affects construction starts.

And with more construction starts, that's why we're starting to see a very healthy build in our CRE pipeline. The final I'll point to here is in our prep opening remarks, 1 of the things we did mention as well as this quarter for the first time in about 2 years, we had a net increase in our total CRE commitments. So I think that's a good early indicator of where we expect rebalances to go.

Very helpful. Appreciate the color. And then maybe just 1 last one for me. I know you guys have a small credit card book. There's obviously been some interest rate cap discussion out there. Just wanted to see if that might have any impact for you guys? Again, I know it's small.

Yes, it is a small book. And if you apply the cap across our outstanding today, it'd be roughly $1 million a quarter, so it's insignificant.

The next question comes from John Arfstrom of RBC.

Most of my questions have been asked and answered. But just, Hope, a follow-up on Peter's question on the first quarter. Anything else you would flag in the first quarter in terms of the balance sheet and P&L just so we can set up the year properly at the slope of the year?

Jon, that's a really general large question. I think we've hit the highlights. I'm really proud of where Q4 ended up, and it gives us tremendous momentum and excitement with our bankers and our clients going into Q1. I think when you look at mortgage warehouse, especially, this tends to be a quarter where we always see our loans decline, and then we kind of dig out of it in January, February and then March starts to stabilize in that business.

We've continued to see strong momentum there in January. I do think that will be an upside for us. We won't have the normal quarter-over-quarter significant volatility we have. Fee income is really too hard on ADR to say where the quarter is going to come in as well as refinance. As you know, rates may be heading down and that could pick up. But Jon, I think we expect another strong quarter to look similar to this one across the board.

On the expense side, we are adding bankers. So you can see in the deck, we've added over 100 employed -- 100 FTEs since midyear. Most of that is in client-facing, client-supporting technology positions that enhance the franchise and our ability to deliver revenue growth. I think as I said before, marketing and advertising really fluctuates quarter-to-quarter. Q1, it comes down and then builds back up. If you look at our last 2 years of Q4, Q1 expenses, Jon, holding out that onetime commission, I think you're going to see look very similar, normal seasonality.

Okay. That's very helpful. Mortgage company was another follow-up I had. And then Thomas or Bryan, I don't know. Just 1 of the other questions is on the provision, and I guess we kind of danced around it before, but you've had 2 really good quarters. You're talking about positive trends in credit and mid-single-digit growth. But how do you want us to think about the provision from here given the strong numbers over the last couple of quarters?

Yes. I would start with, I think the most important measure of our overall credit performance is really in our net charge-off numbers, and I'm proud of how consistently strongly been in that. Provision is -- has a little more noise than it just because of the number of factors that go into it.

Most notably, as we are calculating our reserves, obviously, economic outlook as far as -- and loan growth can go into that number as well. So if provision is higher in future quarters than we've had in the last 2 quarters, that can certainly actually very much be a positive, as it can be driven by the amount of loan growth that we're expecting and the momentum that we've seen. And so just given kind of the number effect going to the provision number, I think overall, I'm personally more focused on net charge-offs, that's the best reflection of our credit quality.

Jon, I made this comment last quarter, and I'll reiterate it all with Tom, I do believe with all the facts we know today, we're done in that building phase. We spent 2-plus years constantly increasing our provision, increasing our coverage not knowing what was going to happen, whether it was the CRE wave, there was just so many uncertainties.

There's just as many uncertainties today, but I don't think we'll have to build. I think we're at the right reserve level. So you can really think about it more normalized as to would we have a release quarter, but it should trend with loan growth, which it has not been in the last 2 years.

Yes. Okay. That's what I'm looking for. I appreciate it.

The next question comes from Chris McGratty from KBW.

This is Andrew Leischner on for Chris McGratty. I know near term, you said you want to stay closer to 10.75 CET1. And you mentioned earlier on Jared's question that you believe longer term, you can operate your balance sheet in the 10 to 10.5 CET1 range. But I guess what are you and the Board need to see maybe from a market or regulatory perspective to get comfortable dropping down to that range?

Yes. So it's really 2 levers in the first is most important, and that is just sort of the economic data play out. If we were sitting here in the spring of 2025, everybody had concerns about how tariffs were going to impact the economy in the short run. We've now seen 9 months of evidence and through a number of different means it's had very little or minimal negative impact at this point.

And so as those kind of economic factors play out, the outlook for the economy in '26 and '27 factor into our thinking. So as we look at the economy, we get more and more comfortable with the ability to bring those levels down.

The second is, there is a regulatory backdrop around capital and excess capital. And clearly, we pay attention to where we stack up in terms of peer comparisons. And you've heard some discussion and calls earlier this week that people are generally migrating capital levels down. So the combination of those things, I think, over time, gives us as a Board, more and more confidence that we can manage our capital levels down.

Our approach has been to take it in fairly small steps, take it from 11 to 10.75, and then we talk about 10.5 and then we talk about 10.25 and just do it in a way that we can manage through the distributing the excess capital and deploying it in the business. And so I think it's an evolving conversation. We'll do it in a measured and thoughtful way, but it's principally the economic drivers that we're looking at.

Great. And then just another follow-up on the C&I loan growth and sorry if I missed this earlier. So outside of the mortgage warehouse growth, and I know there was another $700 million of C&I growth, excluding the mortgage warehouse. Can you just talk about where that source of growth came from and going forward, how we should think about C&I growth and where it's coming from outside of mortgage warehouse?

Yes. Happy to address that one. C&I was obviously the largest number. But outside of that across our C&I platform, I think what I'm very encouraged by is it came from actually a very diverse mix across all of our businesses. Our regional footprint had very strong production across all of our regions. In our specialty lines, I guess, I'll single out equipment finance as one business that had outsized growth relative to some of the other businesses. But I think the most important takeaway here is it was pretty broad-based, and we saw it across most of our businesses and regions.

Next question comes from Christopher Marinac of Janney Montgomery Scott.

I wanted to follow up on the regulatory disclosures last quarter on the NDFI loans. I think about 60% was related to mortgage warehouse, and obviously, 40% is the rest. And I'm curious if the mortgage warehouse, Hope, grows and gets to the upper end of the growth range this year, does that mean that the lower percentage on other NDFI loans would occur? Or would you still be seeing growth in some of those other business and other lines outside of mortgage?

Sure. I'm happy to address that. I'll break that into a few parts. First off with the growth that we've had in mortgage warehouse that actually accounts for a larger percentage. It's more closer to 2/3 of our NDFI exposure, is in mortgage warehouse. And from a safety and soundness perspective, I remain very, very confident in the way we have excellently managed that business for a lot of years now.

Most notably, in that business, we take physical possession of the notes. So you can imagine the amount of paper coming in and out of our mortgage warehouse group each and every day. In terms of other NDFI given the noise that's been in the market, we certainly continue to look at that very closely. But I would point to, once again, the years of experience we have in that sector, consistently strong performance.

And I think there's some differentiation for us as well in terms of, we have a full-time team of field examiners, that's 7 full-time staff with nearly 20 years of average experience. And through that team who are on the road probably 50 weeks a year, we do our own field examinations out generally 1 to 3 per customer every year. We do supplement that with some third parties as well. And in addition to that, once again, given kind of the recent noise, we have also completed recently a comprehensive review of our nonmortgage warehouse NDFI book. We segmented all of that into 7 different segments, which have very different risk profiles and we've done deep dive analysis into each of those segments with unique scorecards that we developed based on the unique risk of each sector.

So we continue to look at it very closely. We and we continue to originate in those segments as well. We do it in a prudent manner as we always have, and I think the results have been pretty good.

Following on Tom's comments about mortgage warehouse, I really do want to reiterate what he said. I said is that November what Tammy Lacoste, the head of that business at a conference. We do mortgage warehouse and it looks exactly like a mortgage loan. We -- we picked the closing attorney, we take physical ownership of the actual loan dock. It sits in the same vault as the mortgages that are on our balance sheet. So for us, when we do NDFI, we have that underlying collateral with us. and we get to sit at the table with a lawyer that we choose at the closing. So there always but we do do it differently than some of our other peers.

I want to point to that when you think about NDFI exposure for us, if we had an issue with a borrower, we can -- we have the notes, we can sell them into the secondary market and get our money back, which is not traditionally how the NBFI is thought about.

To your mechanical part of your question, if the NDFI number goes up in first quarter, second quarter and beyond, it's likely to be driven by faster growth in the mortgage warehouse lending business than any of the other India lending businesses.

Great. Bryan, Tom and Hope, that's all excellent color. And I know the data is now a quarter sale, but it seemed that you had no losses in that business and that at the problems in terms of just nonaccruals were very small. So I suspect that's still the case today.

Yes. That's really the case in our mortgage warehouse book. I mean, I think to be expected in our non-mortgage warehouse NDFI book, there are slightly higher levels of classified assets and NPLs and there's some charge-offs in that business, but I wouldn't call any of it a big outlier relative to our overall book.

The next question comes from Janet Lee of TD Cowen.

Just to clarify on your expense guidance. So the flattish expense guidance, does that still hold if you achieved the higher end of your revenue guide of 3% to 7%. So if you achieve 7%, is it still flat?

Janet, yes, it does. What I'll say is if we achieve the higher end of the range with more countercyclical commission businesses than we had this year, that's what brings it up above the 0%.

Got it. And just a quick follow-up. If I look at your fourth quarter loan growth results, period end 7% annualized, looks like a lot of the narrative around C&I potential mortgage warehouse and CRE inflection, those all sound positive. And it feels like there is a level of conservatism baked into your mid-single-digit loan growth. Is this a fair assessment or am I missing anything?

Janet, we are traditionally a very disciplined lender. And as you look back at how First Horizon has lend for the last 5 or 10 years, we tend to be pure averages. And when we think about what we think the outlook is for the market, we're not trying to overperform. We want to make sure that we get great clients that we can work with that they have the right underwriting standards, they're going -- the way we keep our net charge-offs so low through a cycle is through the disciplined lending.

And so absolutely, we could do more. Bryan great quote that he always uses is, it's easy to lend money, it's harder to get it back. And so I think as I sit here today, I don't see an economy that's going to be above mid-single-digit loan growth unless there's some stimulus put in the system.

There's some mixed things going on in the loan growth percentages. We're not likely to grow our consumer mortgage portfolio at a very rapid rate this year. We just expected most of what we will originate goes into the secondary market. But to your point, we feel very, very good about the businesses that you enumerated, and we think we have great opportunities to grow there.

The next question comes from Anthony Elian of JPMorgan.

Hope, on fixed income, I'm curious why ADR and fixed income revenue didn't grow in 4Q? It seems like the tailwinds were all there, including a lower rate outlook. Volatility was moderate and the yield curve remains steep.

Anthony, we saw a significant slowdown in that business as it related to the government shutdown. And so we mentioned on our call last quarter that early October was starting out really slow. So it was really kind of a tale of 2 quarters where the first half of the quarter was pretty low. ADRs in the back half came up. So it averaged to a good number, but there was a lot of volatility and really low ADR during the government shutdown.

And the last half of December tends to be very slow as well.

And then one more on expenses. So could you put a finer point on the degree to which any incremental commissions from the fixed income business could impact the expense outlook? I only ask because I remember last year, your expense outlook quarter after quarter included increases in commissions, which helped give us more visibility into where total expense could come in for the year?

As we think about the countercyclical, the rule of thumb is assumed 60% commission as revenue increases year-over-year.

I look at the commission base nature of expense growth in 2026. If we get commission-based expense growth in 2026, it will be a high-class problem. That is a profitable business for us, it is broading and deepening relationships, and so while we don't anticipate that that's going to drive the expense number, if we get that and we end up with a higher-than-flattish or flat expenses, that will be a high-class problem in my view.

Our final question today comes from Timur Braziler from Wells Fargo.

Bryan, I just want to make sure I heard your last statement correctly. So is it implying the flattish expenses imply flattish countercyclical revenues in '26 and to the extent that you get growth there, then you'll get growth in the expense base?

Well, back to my earlier point about all models somewhere useful. We have to make assumptions about what our countercyclical business is and our commission-oriented business is. So that includes our wealth management business that includes our fixed income business, that includes incentives we play around mortgage warehouse lending. So we've got a series of assumptions in there.

I wouldn't overread that we don't expect that, that balance will change. But we have incentive programs in our straight C&I lending and our commercial real estate lending. And as we look at the course of the year, we think all of it balances out, given our expectations where revenue is likely to come from that will largely be in a flattish area.

Got it. And then just following up on the loans to mortgage companies, just wondering what portion of the growth is coming from new client acquisition, if any? Or has that ramp that you've been focused on over the course of the past year-or-so? Has that largely concluded, and that business is now more or less stable? o is there still some level of benefit coming from New Pine acquisition there?

Yes, I'm happy to address that one. I don't have the exact split with with me, but I can say that we continue to pick up our new customers at a pretty good clip. As you may recall, there was some disruption to that industry earlier this year and also last year in terms of a few major players either exiting the space by decision or being acquired. And as a result, that became a good number of strong customers that were potentially new homes.

And so our team has done a great job through the execution and the expertise we have in the space of picking up new clients, but we certainly also upside with existing clients as mortgage volumes have picked up, and so the increase you're seeing is really a combination of mix of the 2.

And we get a larger share of originations as a result of all of that is what.

We have no further questions at this time. So I'd like to hand back to Brian for closing remarks.

Thank you, Lucy. Thank you all for joining us this morning. We appreciate your time and your interest. Please feel free to reach out if you have any further questions if there's anything that we can do to help fill in the blank. Hope you all have a great day.

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

We're going to get started here. Up next, we're pleased to have First Horizon joining us once again. As I said, it's successfully executed on its strategy to improve returns through tight cost discipline and returning additional capital, amongst other things. The company continues to have one of the most attractive footprints in banking, and it's working to improve overall returns on a sustainable basis.

Here to tell us more about the story are Chairman and CEO, Bryan Jordan; the CFO, Hope Dmuchowski -- sorry about that. Today's discussion is going to be a fireside chat.

So welcome, guys. Great to see you once again.

Thank you.

So Bryan, 2025 was a solid year for the bank. You made progress on your return targets, returned a lot of capital, held costs tight, had, in certain pockets, very strong revenue growth. As you reflect back on the past year, what went well? What are the areas for improvement? And how does this position the bank for 2026?

Yes. Ryan, thanks for having us. It's great to be back here. And as you summarized, I think we had an outstanding year on a number of fronts. And set aside the financial for a minute and focus on the progress that we made getting technology put in place, that we started 2 years ago. We have updated our technology stack. We have structured our data centers in such a way that we should have very good efficiency and effectiveness going forward and be able to maintain that technology stack.

I feel very, very good about the progress we made in improving the profitability of the balance sheet. Essentially, taking less profitable relationships and rotating that out and focusing on our core customer base.

And then the final point that I would make is, Hope was a big part of it, but over the last year, we've taken our what usually is somewhere between a 55- and 100-page strategy document that we share with the Board on a 3-year basis, and we spent the last year really taking that strategy in a 5- or 6-page document, and putting that in front of everybody in the organization. And we put it in front of people in a number of different ways. I did quite a few presentations, Hope and others did as well. We put it in people's hands. We put together essentially learning maps where people sat down and talked about it.

And you say, what's in that 5 to 6 pages? And it's very simply trying to define the part of the business where we think we can be very, very effective, outcompeting our broad peer set. And that includes the type of customers and the type of relationships we want to build with those customers, all the way down to the investments that we need to make in technology and people to ensure that those things happen. And I think that as much as anything has sort of served as a focal point and a reset for the organization, which allows us to drive future profitability.

So you talked about '25 being a really good year. I think it will be a very good year. We've only reported 3 quarters so far, so being the accountant, I know there's a lot can happen between now and the end of the year. But I feel very good about the financial progress as well. And I think we've made tremendous progress driving towards 15-plus percent ROTCE.

And don't worry, we will get to how that fourth is progressing at some point in the next 31 minutes. But Bryan, I know that you're out in the markets often talking to clients. You listen to the sentiment at the conference, it's clear that people are feeling pretty upbeat. Maybe just talk about how recent macro developments have shaped your outlook for clients and the bank's momentum. What shifts are you seeing in client sentiment? And how are you feeling about how pipelines are looking?

Yes. I was out in the market last week for 2 or 3 days visiting with customers. And really over the course of the year, I would say customer confidence has continued to build, whether that's a function of the tariff really changes sort of settling in and people understanding that or how to work around it in terms of profitability or whether that's lower interest rates or whether that's just pickup in the economy. So I think customers are more forward-leaning today than they were 3 months ago, more forward-leaning then than they were 6 months ago. So I think it has continued to build.

And we see that in our loan activity, our loan pipeline. I feel very, very good about what I see in terms of commercial lending. Our balance sheet is strong. I think we're going to have strong pipelines at the end of the year. And I heard the statistic yesterday, we expect, by the end of this year, we will originate something like 60% more loans this year than we originated last year. So that's evidence of customers being more forward-leaning, and I'm optimistic about how we transition into 2026.

And I know that we'll get formal, formal guidance when we get into 2026, but I think we've talked about loan growth turning to more normal levels next year, maybe mid-single digit or so growth. Maybe just talk about the areas you're expecting to pick up. You talked about C&I. I know that CRE, we're getting closer to an inflection. Maybe just talk about areas you expect growth and what gives you confidence that we should see a return to this.

I think loan demand will be reasonably broad. And I've got a lot of confidence in our C&I pipelines and our C&I activity. Our volumes have continued to be very good and steady there. I think our mortgage warehouse business will continue to be strong into 2026, simply because you've got this pent-up higher mortgage rates starting to drift down some. We haven't hit the magical 6% on the 30-year mortgage, but it is getting a little bit better and easier for people to finance mortgages.

And it looks like at this point, commercial real estate is flattish in the fourth quarter where it's been down a couple of hundred plus million dollars the last several quarters. And I think that's starting to flatten out and we're starting to see a little more activity on the commercial real estate side. So I think it will be broad-based across all of our commercial businesses.

I would expect that given lower rates, that our residential mortgage portfolio will continue to drift down some, and we'll use that capital and reinvest it in higher-yielding commercial activity. So I expect, as we've said in the past, mid-single digits in terms of loan growth next year.

That sounds great. So across your footprint, there's both lots of competition but there's also lots of disruption. Maybe just talk about how you think this is impacting both your competitive position and your ability to attract and retain clients.

Yes. I think I would describe it in 2 ways. One, any time you have a lot of merger activity, that creates some sort of momentum in institutions. And all of the people that are engaged in M&A activity, they have been good competitors and they will be good competitors. But customers, bankers all go through change when you're integrating systems and processes and technologies and all of that. And we think that will create opportunity for us, and we have seen those opportunities emerging in the fall of this year. And as deals start to get consummated and get into the integration phases, I would expect that to pick up.

And then second, I would go back to what I described about our focus in the organizational strategy. People have been very, very clear about how we're approaching the market, that we're going to compete as a really good commercial middle market lender, that we're going to build on our specialty businesses, we're going to focus on private client and wealth management. And with those businesses, we can be very, very competitive with our product set and we could deliver through differentiation in terms of what the customer experience is in an otherwise commodity-based financial services world.

Yes, that makes total sense. Let's spend a minute talking about deposits. So deposit balances have been flattish or so over the past year or 2. But obviously, there's a lot of underlying pieces. As you think about the funding model for your growth objectives, what are your expectations for both deposit growth, deposit betas into '26? Hope, feel free to get in, in this. And do you expect to resume growing deposits as we fund loan growth next year?

Yes, I'll start and I'll turn it over to Hope. But I'll start by saying our team has done a really fantastic job in attracting customer relationships and deposit growth. And I look at the balance sheet on a daily basis, as you might expect, and we're seeing good customer activity on the deposit side. Commercial deposits, noninterest-bearing deposits have been good through what is essentially the eighth or ninth day of December.

I would say that our bankers have done a very good job managing beta. Hope and her team have been very involved in that progress, and they have done a very nice job working with our bankers to understand what interest rates are doing broadly speaking in the marketplace vis-a-vis competitors, and working on policies and practices and procedures that give us the ability to manage our deposit base in a win-win situation where our customers are fairly compensated for the business they do with us. And at the same time, we deliver a nice return to our shareholders.

Yes. To add to what Bryan said, I think we're seeing Q4 of this year looking exactly like Q4 of last year, which is the competitiveness out in the market with successive rate cuts really kind of comes back. We're not seeing competitor offers out there for high rates for long term. Most of us are expecting a rate cut this month and every CFO out there is trying to keep their deposit cost commitments short.

We've seen a lot of success in walking back our deposit costs with current customers as well as our new customers. We continue to see DDA stabilize and growing throughout the year. There is some seasonality to that and Q4 tends to be a higher quarter for us. But deposits are doing well.

I'm also encouraged that the Fed is no longer going to be shrinking the balance sheet. The end of that program will be very positive for our industry.

So I just wanted to spend a minute maybe talking about some of the specialty lending businesses, right? We obviously talked about traditional C&I. Loan-to-mortgage company obviously would be one of these. Maybe just talk about some of the key businesses. How does this business mix between regional banking and your countercyclical businesses deliver stability and performance across varied cycles? And where are you expecting the most attractive opportunities for 2026?

Yes. I'll start with a little bit of Q4, is we're seeing good on our countercyclicals. Mortgage warehouse has had a stronger Q4 than we anticipate. Usually, we see a lot of paydowns, and we've seen that stay pretty flat to positive this quarter. Talked with our head of mortgage warehouse the other day, and he just said that it's just steady. They're steady refinance, they're steady new purchases. And FHN Financial is having a good Q4 similar to Q3.

And so we're already starting to see the rate cuts coming down having a positive impact on our countercyclicals as we did at the end of Q3.

So I wasn't going to ask you yet, but since we've mentioned the fourth quarter several times, given that we are 2 months into the quarter. You talked about good deposit performance, you talked about good performance in some of the countercyclicals. Anything to update in terms of expectations? Bryan mentioned loan-to-deposit growth, but loan growth, deposit costs, anything else that's relevant to share at this point in time in terms of 4Q?

Well, we feel good about the guidance that we laid out at the end of the third quarter, and we're confident that we'll be able to hit that guidance in the fourth quarter.

I want to circle back to your previous question for a second because I think it's important. We manage the specialty businesses. Commercial real estate and equipment leasing are 2 that I'll pick off the top of the head, where our teams have done a very fabulous job, in my view, of integrating that product set into the customer calling across our broader product set. So we're seeing very good growth in our equipment leasing business across our footprint, and we're seeing that in our commercial real estate business.

Commercial real estate business, for example, we have what we call Market Investor CRE, which tend to be smaller transactions done in the marketplace. And those are largely served by our commercial teams that reside in our footprint. Then we have our Professional CRE business. Just by communicating across those 2 businesses, our Market CRE business has improved yields by 50-plus basis points on a year-over-year basis. So we're seeing really good collaboration across the specialty businesses, and particularly the breadth and depth and knowledge of the marketplace transition into how we serve our customers across the broader footprint.

But as we look at the fourth quarter and momentum into 2026, we think we have very -- we'll have very good momentum as we finish this year. Our fixed income business has continued to sort of follow the trends of the third quarter. You're sitting here in December, which you know at some point fixed income sort of shuts down because of the holidays and the year. But we feel good about fixed income. Hope mentioned our mortgage warehouse business balance sheet trends look good. So we feel pretty confident about our ability to deliver this quarter.

Maybe just to put a finer point on the countercyclical businesses in 2026. So I think about combining a couple of things you said, right? Mortgage activity should be up next year that helps both the origination and loans to mortgage companies, interest rates coming down, shape of the curve should be good for fixed income business. Just maybe help us understand how you think about how these things could contribute to revenue growth for next year. And anything likely to stand out for you in terms of relationship deepening or fee income growth in terms of the countercyclical businesses?

We'll put out a more formal guidance early next year, I expect. But I would expect as we sit here today that, if we can grow the balance sheet mid-single digits, that we'll have revenue growth that will be commensurate with that. And I've said in the past that we think we can maintain flattish expenses. And as we are budgeting or planning, we feel good about our ability to control costs next year.

That's not to say that we don't have inflation in a few line items here and there. but we've got some offsets. But on a net-net '26 versus '25, we'll have flattish expenses. So if you put all that together, we think we can deliver very nice returns next year and continue to make progress on driving shareholder value by increasing the ROE in the franchise.

I think I've asked this question to Hope 5 different times, but I guess I'll ask it again in the public forum. So you mentioned flattish expenses, obviously impressive just given all the investments that need to be made in the business. But Hope, maybe just talk about how do you hold expenses flat while investing in talent, new branches, technology, things like AI? And are there any areas of particular where you're getting efficiency opportunities into '26 and beyond?

You said you've asked this question before, does that mean you don't like my answer before, Ryan, and you need me to answer it differently?

On private calls.

The first is 2 years ago or 2.5 years ago now when we had an Investor Day, we announced a 3-year $100 million investment in technology. We announced a retail distribution strategy. And we were really coming off of the MOE, more important than other things that were happening, and getting the full benefit of scale for the First Horizon and IBERIA conversion. We said at that time we need 2 or 3 years to invest back in the company. And then that after that third year, we would start bringing costs back in line to efficiency ratio to more than peer average.

So we're appreciative that we've been able to -- the investors have given us the ability to increase our expense base the last couple of years. But that was not a long-term intention. So it's $100 million for 3 years combined back in technology. A lot of those technology investments we've talked about before either driving new revenue and some of the items Bryan just talked about or creating efficiencies. There's also the ability to scale. The change to your cost basis when you go into a cloud, if you're able to get -- we moved our data center off-prem. You get out of the building, you get out of the people there. So all of those investments that we've been doing in the last 2 or 3 years are bringing that savings back down into the company.

We are still reinvesting. We still have investments in a flattish budget for next year. We're continuing that trend, but we do want to have top quartile returns through the cycle, and that requires us to make sure that we're being disciplined in where we spend our money and how we invest.

Maybe let's talk about the ish that you highlighted. I know that commission businesses were, I don't want to say not included, but I'm sure there was a certain level of activity. Just help us understand just what was baked in for the commission businesses, the countercyclical businesses, which I know, as you've noted, are not part of your flattish expenses.

As we think about it, we think flat if the commission businesses were the same next year. So as mortgage refinance will really be the big one, which is you have the ability to refinance mortgages, they're not going on to your balance sheet, you're not picking up that NII, but you have a commission business there, as well as FHN Financial. So if you think about it, whatever you expect that to grow next year, our countercyclicals, we expect about a 60% expense offset to that.

Got you. Okay. No, that's super helpful. So I think it was 2 years ago at this conference, you told me that you expected mid-teens returns in the next 24 months. You got to mid-teens faster than that, so congrats. You updated your target to 15 plus. We have ish, we've got plus, we have a lot of different things going on. And now you hit 15% last quarter.

Now what is the path to achieving the sustained 15% ROTCE as you highlighted? And what are the main drivers to getting there? Obviously, capital, credit, PPNR. Maybe help us think about how you get that on a sustained basis and the key drivers.

I'll go first. So one question you haven't asked yet is about capital, and I know I get asked that a lot this quarter as we did announce in the end of October a reauthorization. So we have repurchased approximately $300 million so far this quarter, and we're still in the market. So actively bringing down our CET1 to more peerish levels and where we think we should run the company as part of that.

Credit normalization, we've seen 2 quarters in a row, we've been able to bring down our coverage as we start to see better performance in the market. So as we start to grow our balance sheet, to be able to rationalize that provision build to really go with the loans we're originating versus a model outlook.

And the third is what Bryan has consistently talked about and really ties back to the 5 flags initiative he was talking about. How do we get the $100 million plus? I know you don't like ish and plus, Ryan, so we've got to come up with different words for your conference next year. But we have $100 million plus of PPNR in our existing portfolio that we are already getting at this year when you look at us having a flat balance sheet, but yet NII has gone up. We've been able to increase year-over-year our PPNR.

We're continuing to do that with items like Bryan talked about, which is the partnership between our specialty businesses and our end market bankers; the technology that we've rolled out. We talk a lot about our treasury management platform. That was one of our big projects coming out of the MOE that we had to get through. We are continuing to add more products onto our treasury management platform that we can offer our customers, which comes with a fee. So continuing to use everything we have today with our clients and our investments to deepen those relationships and generate more profitability, in addition to the mid-single-digit loan growth.

So you talked about the $100 million plus PPNR opportunity. Maybe just talk about how those are progressing. And how does that factor into the type of revenue growth you're talking about next year? And where are you seeing the best opportunities there?

I'll start, and I want to add just a second to what Hope just said. When you look back across this year, we'll have purchased just under $900 million worth of stock back this year. So that's significant relative to our market cap and really a good job managing the capital base in the organization.

And you asked about the 15 plus, and I won't take you up on the ish comment. But when you look at where we were in the third quarter and where we're likely to be in fourth quarter in 2026, I think we're at that 15 plus-or-minus area. And I think that momentum will continue to build as we capitalize on what Hope just described and the $100 million of -- $100 million plus of additional opportunities. If you think back about what we have said, we originally announced that in middle of the year, call it, June, and we're still saying $100 million plus. And you can infer from what I'm saying that we've made progress on that, and that's showing up in our existing profitability. And we think that there's at least $100 million of progress out there.

And it's easy for me to sit here and describe it as easy; and it's not easy. It's hundreds of customer interactions on a monthly basis. It is making sure that we're cross-selling our products on an effective basis. It's meaning that we're introducing our wealth management and private client folks to our corporate CFOs and treasurers and owner managers that is collecting the fees that we actually earn and make sure that we've got effective pricing. It's introducing our debt capital markets folks. It's lots of little activities that are done very, very effectively.

And we're seeing the progress in that, and we continue to have confidence that that is going to really enhance our profitability. And as we think about what we need to be focused on in 2026, that is our primary focus. It is delivering on controlling our cost and capitalizing on the value that we can create for our customers and, by extension, the value that we create for our shareholders.

Maybe as a follow-up to the buyback question, so $300 million quarter-to-date, that means you have around $900 million-ish still on your authorization. And I guess in a world of improving loan growth, how do you think about utilization of the remaining authorization given the toggle between loan growth, using that for -- to buy back shares?

It's never really a close call. If we have the opportunity to support quality customer activity, we're always interested in doing that. And we will do that day in and day out. And when we say we're going to be mid-single digits in loan growth, we all want to recognize we can make loan growth anything we want it to be. But the qualifier that I just used in terms of the trade-off is we really want to make sure that we have deep, broad, quality relationships that we're using our capital to support with our customers. And that is really what drives the -- how we manage the balance sheet.

So we think, if you very simply -- if you do very simple math and you say you're going to have a 15 plus-or-minus percent return in 2026 and you're going to return roughly 1/3 of it in dividends and roughly 1/3 of it to support loan growth, it still gives you capacity under your authorization to buy back some more stock.

I guess the other piece that you could have factored into that is that you've been in an environment where you've been bringing down capital ratios, right?

Yes.

So your allocation probably would have kept it consistent. But if I think about it, you have near-term target of 10.75% and, I guess, long-term goal of 10% to 10.5%. How do you think about balancing all of these things, like you obviously talked about the 1/3, the 1/3, the 1/3, but also then bringing capital down? And what would drive you towards the lower end of that capital target?