First Horizon National Corporation Aktie

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?

I think it's really 2 factors. I think the progress that we have made, I think we'll make substantial progress this quarter getting towards 10.75%. I think we'll reassess in early '26 and continue, do we move to 10.5%, and being measured in the steps we take.

I think what dictates the sort of the drivers are, one, what's happening in the broader context of the industry. And it sort of feels like some of the overcapitalization in the industry is -- might go next-door and get more precise answer. But I think you're going to have the industry sort of migrate capital levels and not be as overcapitalized as we have.

And then the other is, how do we feel about the economy? And while we're optimistic about the economy and credit quality continues to be good in 2025 and we have every expectation to be in 2026, I do think that there's probably a disproportionate, more downside risk in the near term than there is upside opportunity, until we get more stability in the employment picture and things of that nature. So all of that said, we think we'll make very measured and thoughtful steps in how we bring those capital ratios down. But I think the overall bias is we could operate the organization somewhere between 10% and 10.5% over the long term in a CET1.

Guessing you're not going to be surprised by this next question, Bryan. But I think the big story at 3Q earnings, at least from the market's perspective, was your commentary on M&A where you said, in '26 or beyond, that you're increasingly confident in your ability to integrate a well-structured merger. While you noted that this wasn't a change in message, obviously, the shares were sent down in a meaningful fashion. Now that a few months have passed, what conditions would drive you to pursue a fill-in or a tuck-in acquisition in your footprint? Is there increased flexibility or urgency versus prior years to look at doing something like this?

No, I'll go back to what I said 4 or 5 minutes ago, which is driving the $100 million plus of incremental profitability is job number one. And M&A, by definition, is, to some degree, going to change what you focus on as an organization. And if it's a small fill-in, tuck-in even, it still takes time in our technology teams, et cetera. So while I am increasingly confident that we can do that given the right opportunity, it's not something that we have prioritized as a significant 2026 event.

And as I think about our business, I think we have a great footprint. We have great momentum. If we can get better branch distribution through, the organic branches that we will build in '25 -- excuse me, '26, '27, et cetera, with a tuck-in, yes, we will consider it. But number one is we're going to drive the business like we have to create value for our shareholders, and the best way to do that is to improve our profitability.

Sure. No, that makes total sense. I guess, obviously, a couple of years ago, you guys made the decision to pursue a transaction with TD. And obviously, we all know how that ended. But maybe just talk about, given the changing environment and changing regulatory environment, how do you evaluate the optionality between remaining independent, considering strategic combinations, or even pursuing expansion via mergers or branch deals just given the regulatory climate that we're seeing right now?

Yes. It would be fair to say that I'm less than objective, but I think our Board is an extraordinarily capable board, is a thoughtful board. And we -- if you go back to 2022 and what you described as the opportunity with TD, our Board was then focused on what creates the most value for our shareholders, and they're focused today on what creates the most value for our shareholders. And when we lay out our plans and our strategy, they challenge us on all the alternatives.

So back to your comments about the earnings call in the third quarter, it was never my intent to take any of our optionality off the table that always exists. And we're going to pursue the path that creates the most value for our shareholders. And if that increases -- if that's growing the business organically or if that's being part of a merger in some way, shape or form, all of those things are on the table.

Got you. Super helpful. We really haven't spent any time with you talking about credit. Obviously, credit has been a big, bright spot for FHN this year. Loss is tracking towards the low end of your 15 to 25 guide. Maybe just talk a little bit about anything that you're closely monitoring the credit book or client portfolios in '26? And anything in particular that you're spending more time thinking about in terms of areas of charge-off or provision over time?

I'll start and then Hope can help me. We feel good about what we're seeing from a credit quality perspective. And that's everything from our non-depository lending, which is primarily mortgage warehouse lending, all the way across commercial real estate, commercial lending and even consumer lending. And as we sit here today, we're optimistic that those trends will continue in 2026 given that we are basically leaning in and optimistic about the economic environment that we operate under. And falling rates will help improve credit quality even further.

The one comment I'll make on NDFI, in addition to Bryan -- or to credit, in addition to Bryan, is the NDFI comment. The call reports in June had changes to them, so as Q3 became a question about NDFI due to the losses. We screen higher than most, but we pick mortgage warehouse up on that. I want to note how we do mortgage warehouse different at First Horizon.

We're not lending to a party for them to lend to somebody else and we don't have any collateral. We do have collateral. The way we do mortgage warehouse is, at closing, we pick the lawyer and we take the loan documents and we retain the loan documents. So should a company that we're doing business with in mortgage warehouse not be able to continue in business, we have that collateral. We can proceed with pledging it with Fannie, Freddie or selling it into a securitized market.

And so I do want to comment that. I know poor Tyler has had a lot of questions on that post Q3 earnings. But mortgage warehouse does count in the call report for us as NDFI and shows up the biggest part of it. But it is not that third-party lending where you don't have any collateral on the other side or you don't know who they're lending to.

So we're getting towards the end here. We covered a lot of ground, particularly how you're thinking about the next year capital allocation, strategic activity, PPNR uplift. So a lot in there. And I guess the answer could kind of speak for itself, Bryan, but when you think about First Horizon, talk maybe about what you think distinguishes the story into next year. What do you think is still misunderstood? And what do you see as the biggest opportunity as we turn the calendar in the next 22 or so days?

Yes. I think people are very keenly aware that we have a fantastic footprint. I think that we are still a transition story. We spent the better part of 3.5 years focused on M&A, whether it's integrating an MOE or then moving into the TD scenario. I think the momentum build that you're seeing in '23, '24, '25 is really a building story. And I feel very, very good about our ability to deliver in a very focused way for our customers and our communities that will create a tremendous amount of value for our shareholders and, at the end of the day, is going to be something that is a more and more increasingly valuable firm and a great Southern footprint.

Anything you would add to that?

I think you covered it well.

Awesome. Well, we are out of time. So please join me in thanking Bryan and Hope.

Thank you. Thanks, Ryan.

Thanks, Bryan.

Thank you, everyone. We have First Horizon Corporation and looking forward to the conversation. So First Horizon Corporation is a regional bank with $83 billion in assets with over 400 branches across the Southeast. It operates its businesses through 3 segments: regional banking, specialty banking and corporate, and it's headquartered in Memphis, Tennessee. So presenting today, we have Hope and Tammy. Hope is CFO; Tammy, COO. Hope first joined First Horizon in 2021, previously worked at Truist and its predecessor, BB&T in numerous roles over your 20-plus year career in banking. Tammy has responsibilities for technology and operations, and Tammy has been with First Horizon since its merger with IBERIABANK. And your role there, I think you were in a lot of retail and consumer banking positions. So welcome to BAB.

Thank you.

So Hope and Tammy, thanks for coming today. I really want to spend the time digging into the kind of drivers of achieving your intermediate-term target of a 15% adjusted ROTCE. And I'd also like to spend a little bit of time talking about regional bank M&A. So I'm going to start with the -- start by asking you about the consumer and your customers. Can you just talk a little bit about what the outlook is and the sentiment is from your customers, what the appetite is for loan growth and kind of customer mindset today?

Absolutely. I'll start, and then I'll hand it over to Tammy, who heads up our wholesale businesses, which is our mortgage warehouse, mortgage, franchise finance, FHN Financial, correspondent lending and a couple of other ones that I'm sure I'm forgetting. So she'll have a much closer connection to those conversations. But it's nice to be in the Southeast. We have a lot of growing markets. It continues to be strong economies. Our customers are very optimistic. They feel good. There's been a lot thrown at them in the last 5 to 6 years. They've become very resilient, whether it's COVID shutdowns, rising rates, Tariffs were an unexpected shock to the system. They've gotten past digesting that. In third quarter, we had the highest fundings of originations that we've had in multiple years. And so we're starting to see that optimism come through in loan growth. Just a lot slower than we thought a year ago when we were at BAB. A year ago, when we were at this conference, we thought we were going to see high single-digit loan growth. That just hasn't played out in the economy. But we feel really good about where our customers are. We feel good. I know we'll talk later about where our credit has been.

Our customers are optimistic and resilient, and we're continuing to partner with them as they grow their businesses, invest in our local markets. Tammy's mortgage warehouse business has been one of our bright spots for loan growth this year. And so I'll let her talk a little bit about customer sentiment in her businesses and what she's hearing.

Yes. I would say -- I mean, I agree with Hope. I think our clients are resilient and also resourceful. And I sat here last year and said they really wanted to see a couple more cards played and they wanted rates to go down. And I would say the same exact thing today. They want a couple more cards played than they want rates to go down. But in general, I think they're cautiously optimistic in terms of where they are. We've got projects that they want to get done. And as Hope said, third quarter fundings were good. Our pipelines are strong. And so we feel good about where we are, certainly like the markets that we're in, like the businesses that we're in.

All right. Great. So can you talk a little bit about your loan and deposit strategy and really what the kind of emphasis is on the mix of deposits and kind of areas of loan growth where you are focused?

We really focus on customer relationships, not a product. We're not trying to sell a deposit or a loan. We're trying to build a long customer relationship. We have often over the last few years and every quarter, talked about our client retention numbers. That's important to us. We're not trying to grow deposits or loans with somebody who's going to be with us for a year or 6 months chasing a rate on a CD or deposit. We see it as how do we build a long, deep relationship. Sometimes we start with the deposit relationship, sometimes we start with the loan relationship. But how do we understand our customer needs and how do we deepen that relationship over time? If you're starting in the commercial bank, you'll possibly start with a loan and then start with treasury management services and then talk to the CEO or CFO or operator about wealth management services. And so continuing to build that relationship. We do have a decentralized model in our regional bank where we let the decisions be made in our local markets who know their customers and know the markets the best.

And so we -- if you think about deposit pricing, we have a deposit pricing framework, but every one of our market presidents, our regional presidents, they have the ability to price up above that, knowing the customer relationship, the value of the customer relationship. Tammy's business is much more what's the right word? You guys are constantly talking to your customers almost every single day in mortgage warehouse and franchise finance. They have so many opportunities to continue to deepen that relationship and mortgage warehouse has really been our bright spot as we've deepened those relations with clients. Tammy, you talk a little bit about that business as well as franchise finance that have both been great loan growth areas for us the last 2 years.

They're good loan growth areas. But as Hope said, we think about bringing the whole bank even to our national businesses where we don't have presence. And certainly, technology has given us the ability to bank clients who are outside of our footprint. So we spend a lot of time talking about treasury management, just deposit services across not only our in-footprint clients, but also of our out-of-footprint clients as well.

So you mentioned this, but I mean, you operate in a very desirable footprint. And there's been, I think, a lot of activity with kind of large banks entering your market or maybe some disruption from M&A. Can you talk about how that could present opportunities for you?

Yes. Yes to both. We've seen a lot of entrants into the Southeast over the last 3 to 5 years, and there's been 3 large deals announced in the last 6 months that have 6 of our competitors in the Southeast working on mergers, either as an acquirer or being acquired. We had 5 years of disruption at First Horizon. We went through the IBERIA merger of equals during COVID. We have recently been reminding everyone, we bought SunTrust branches from Truist almost the same month that we closed on IBERIA. We're able to integrate those branches in the Carolinas, and they were almost immediately accretive for us. We had not gotten through client conversion when TD made an unsolicited offer, which we took to our Board and accepted. It was premium of 40% all cash, which had never been offered to a bank before. And our Board looked at it and said, this is a good offer. This is better than what we can do for our shareholders in the same time period. And so we took that offer.

In those 5 years, we were distracted by M&A system conversions with IBERIA. And as soon as we got through system conversions, we actually got through most of the IBERIA system conversions at the MOE and announced TD the next week. We had not gone through all of them. Then we sat for 15 months getting ready for the merger and then terminated. We had an Investor Day 30 days later, and we said, we have 2 years that we need to reinvest in our company. We've got to reinvest in our platform. We had not gone through all the IBERIA conversion of systems. We had not done all the investments in our branches and growth like we wanted. And so we have been saying for almost 6 years now that we have been internally focused and that, that has been a priority for us. And we came out this summer and said, we believe that's behind us now and we are ready to go to market. We have $100 million plus of PPNR opportunities that we have identified within our existing footprint and clients. We are hiring new bankers. We are opening new branches. And so if I look at the 5 years that we spent mergers and apply that to 6 other banks that have to now go through that, we know how hard that is.

We know how hard that is on bankers and clients. And so we believe that we will have the same opportunities as they go through their mergers as they had when we were going through ours. Tammy has been our Head of Technology and has had to go through all the MOE system conversions, and then we went into a 3-year $100 million investment to upgrade all of our systems. So almost all of that tech investment, resetting our franchise is behind us, and we're excited about the opportunity we have to grow organically. And yes, if there's disruption, we're happy to be on the other side of it as others sat on the other side of us for 5 years as we had disruption internally during mergers.

Hope and I grew up in banking in the Southeast. I don't think we know any better. She was in the Carolinas. I grew up in banking in Florida and banking has been as competitive 20, 30 years ago as it is today in all those markets. So I like -- I don't -- we don't know any different in terms of being in really competitive markets. We're in a really great position to be able to capitalize on that. As Hope said, we're not as internally focused as you get just when you do mergers and acquisitions. So I feel good about the place that we're at and our ability to hire bankers and attract new clients.

That's a long time to be focused. So probably...

We agree, and we are glad it's behind us.

So I'd like to pivot a little bit and talk about the falling interest rate environment and your asset sensitivity because I think you've got some countercyclical businesses that can help manage that. So can you talk a little bit more about the opportunities at FHN Financial and what can kind of offset some of the...

I'll start a little bit on the production side and then Hope can add on what it does for the overall balance sheet, but we've been in these businesses for a very, very long time. We really like it because through the cycle, it helps us really manage out our earnings capacity. So if you think about FHN Financial and our fixed income business, we've seen really strong performance. We had a good third quarter, very, very strong September. It cooled a little bit in October when the government shut down and some other uncertainty got introduced to the market. But that market, in particular, and that business really likes rates as they start to fall. They like a little bit of steepness to the curve and a little bit of volatility, not as much uncertainty as we have today. And so we're optimistic about the go-forward strategy, assuming some additional cards can get played and a little bit more certainty comes back into that business.

But we've had a really strong third quarter and are looking forward to how it plays out the rest of the year. Holidays and things like that come into play as you get into the fourth quarter. So a little bit of lumpiness in terms of ADR being up some weeks and down others. I can walk the trading floor and literally see the economic cycle impact our ADR in any given day. And so we have like a little bit more stability there and a little bit more to play out from that standpoint. In terms of our other countercyclical businesses, mortgage and mortgage warehouse, we've had a really nice year in mortgage warehouse, got to a high in July, August over the summer. And now we're getting into a seasonal decline in terms of mortgages. Still seeing a lot more purchase money than we're seeing refis, although I do suspect and we've seen a little bit of green shoots from some of the rate changes that have happened that's promising that refi business will kick up as rates go down.

I think when I was here last year, we said when we were expecting a lot more rate cuts, gosh, if we can just get in and around 6% for long-term mortgages, we will start to see refis pick up. And I think that, that still largely is true. And so like the business, we've been fortunate in the mortgage warehouse business to pick up some new clients. I think last year, I shared we were on track to add 50-plus new-to-bank clients in the mortgage warehouse space as there's been some disruption in that market. And so that has come to fruition. We've onboarded some new clients. So we've got a little more than 200-plus clients in that business. And we'll continue to grow it, not only new clients and onboarding them, but also expanding relationships with our existing clients is really important to us. We've got clients that have been with us for decades. And so being able to continue to serve them, word of mouth is really important in that business. And so it's been great for us to be able to pick up some new entrants.

And so some people -- some have left the mortgage warehouse business...

Yes. And people have made different business decisions, but it's a business we really like. It helps us on the countercyclical side, smooth out some of our earnings. And so we have had a good year so far and look forward if we get some good tailwinds into next year on what the mortgage business can continue to do for us.

We talk about asset sensitivity. It's really important to remember that, that calculation that we do that we all talk about, it's based on a static balance sheet. Do you assume that your balance sheet doesn't change? It's a 1-day shock scenario. It's not how can you walk back your deposits over a longer term, how can you increase spread? But we saw last year 3 rate cuts in the third quarter -- end of third quarter, beginning of fourth quarter, and that drove mortgage and mortgage warehouse up. And so when we talk about our countercyclicals, it is that we have a balance sheet that will increase in a falling rate environment as mortgages pick up, and we have total revenue that will increase when FHN Financial has the increase we've seen.

And if we look at what third quarter last year, fourth quarter and first quarter for us were as well as year-over-year, we've been able to show that the asset sensitivity does not mean that it translates to our bottom line because of the countercyclicals. We've seen multiple rate cuts and our NII is higher this year than last year, and mortgage warehouse is one of those reasons, $1 billion more in our highest spread business, it helps offset the rate cuts. Mortgage specifically is one that Tammy and I always talk about today, it's 25 refi, 75 new purchase. It's not a big new purchase market. There is a refi wave coming, not just because rates are decreasing, we think when it gets under 6%, but also because a lot of people have taken arms out in the last 3 or 4 years, they're waiting for rates to drop so they can get a fixed rate loan.

Okay. Great. I'm going to just talk a little bit about expenses because I think you have a good story there with really kind of keeping them flat. So how are you kind of managing that with investing in the business and also kind of keeping the efficiency -- getting the efficiency.

In June of 2023, the years are starting to run behind me, whatever day we had that Investor Day, I guess it was 2023 now. It seems way longer than that. We said we were going to invest back in the company, and it would take us 2 to 3 years to get some of the tech debt behind us, $100 million over 3 years. We said we're going to have to reinvest back into our franchise in people and real estate as we really started to bring the full MOE capacity back, we had committed at our Investor Day that we would -- at the completion of those 3 years, we would bring down our cost back to a peer average efficiency ratio. We've been above that. We said we would have a top quartile ROTCE. And so for us, this is -- the flat expenses is a commitment we made to our shareholders and our investors when we held an Investor Day and said, we need a couple of years to invest in our franchise, and then we will bring our costs back in line. We've made a lot of decisions, operational decisions that have cut costs out of the company.

And so when we look at a flattish expenses next year as we look at the commission businesses that do -- our countercyclicals are high commission businesses, they will increase if revenue increases. We are -- that includes hiring bankers. That includes new branches. That includes launching a new digital consumer app that will be launched sometime next year, I think around midyear, we're targeting maybe second half of the year. So there are investments in that. And so what I really go back to is what we told investors almost 2.5 years ago is that we had to invest back in the company and then we will be focused back on that efficiency ratio, top quartile ROTCE and growing our shareholder value. And now we're at that point that we're delivering on those promises we made.

And so the technology investments that you've made, I mean, I guess, -- are you -- is it near the end at this point? Or where are you in that?

Well, the additional $100 million that we announced at Investor Day, we are largely through that. And that was to clear a lot of the tech debt that we had that we had accumulated over the years. We were running 2 different treasury management systems. We had an old general ledger. We had a lot of things that were on-prem. So I would say, yes, we've gotten a lot of that behind us, which has really given us the opportunity to have a lot more efficiencies from a technology standpoint, but technology investment is never over. What I would say is the other thing that I announced at Investor Day is that we were going to spend this extra $100 million on really cleaning up the run-the-bank work that we needed to get done and put behind us. We have largely gotten that done. And so we're shifting a lot of our investments now to things, as Hope said, are really changing the bank, our client-facing banker-facing enablement.

So building our own consumer digital platform is a great example of now we can invest in things that are really accretive to clients, which we're excited about. So doing a lot more cloud migration. I mean the ability to be able to build in the cloud and have quality engineers building client-facing applications has been a game changer for us.

Tammy, can you talk a little bit about the AI we've seen specifically related to building our new digital consumer app and how that's taking cost out and time out?

Yes. I mean that's another way that, again, it's -- we have the money we need to invest in the business because the costs are coming in under what they needed to. So hope the consumer digital platform is a great example. We're going to build it in less time than we thought we were going to build. It's coming in under budget because we've been able to use AI to do code development. We've been able to use AI to do testing on that platform. And so lots of opportunities to, again, help us with speed and scale. So we can build things faster. We can get them to market faster and the cost is less to do that.

That's pretty impressive actually because most of the time is always longer and over budget. So...

Yes.

Also on time and under budget. So Tammy's point, though, going to the cloud. I mean it is much easier going to the cloud with some of these solutions that just get deployed to company after company. And it is amazing how much AI has changed both development and testing.

Yes. Speed, scale and quality. So we try and think about all of those and then deliver it to hope at a reduced cost.

Okay. So just keep -- I want to make sure we have time for questions, and I want to move over to credit because I think that's another good part of the story where the last few years, I think you've had very good credit outcomes. So kind of what are you -- what's your -- what are you watching now? Like where are kind of any sort of yellow flags or anything that is kind of keeping you a little bit more vigilant?

I would say we start with credit culture is one of our core disciplines. We look at the client relationship, is this the best spread we can get with somebody we don't know or a client that we haven't worked with before or maybe we know that there's been possible concerns with. We run a decentralized credit model, which means our credit analysts sit in the markets with our bankers and our specialty businesses have dedicated credit analysts that are only dedicated to them. They're not sitting somewhere looking at a piece of paper saying, yes, no, this models, this doesn't, we don't want to do this. They're going and meeting the clients. They're living in the communities where they drive by and see that business every day or frequent the business or knows the business owners. And so what we're seeing now is the client selection piece that we've been talking about for almost a decade.

Sometimes there were multiple earnings calls you can go back to where Brian Jordan asked, well, why don't you have more loan growth? And he's making the loans the easy part, collecting on it through maturity is the hard part. We're showing that we are being able to collect on those loans that we have best-in-class charge-offs. We're in the bottom quartile for charge-offs, best quartile, usually the top 3 when it comes to lowest charge-offs. That comes back to that discipline of lending, knowing your client, having that relationship being with some of our mortgage warehouse, some of our Pro CRE clients, we have relationships that go almost 100 years with the business and operators. And that makes a difference when you're trying to make a credit decision. Not everything can be seen on a piece of paper by some analyst that runs it through an AI model. Unfortunately, it's one thing that I don't think as much everyone is like, can AI make credit decisions? It can, but you might not like the one that's going to make when you aren't looking at the business.

Tammy personally has increased multiple and brought new clients to mortgage warehouse and she goes to see them. Before she'll come back, like, all right, I met with them, here's how much I want to do. Hear the Chief Credit Officer will come back and say, hey, we're going to open this much a line. We're going to increase -- she goes and meets with them and our Chief Credit Officer goes with her.

I think it's a differentiator for our company. I mean it's -- we have our credit officers, as Hope says, sitting right alongside of our relationship bankers. But our Chief Credit Officer, myself, our President of Regional Banking, lots of us Hope, Brian, all of us go out and make client calls. And when we can take deals off the table immediately in markets when people have lots of options and there's competitors all over the place in the Southeast, it's really a differentiator for us. So we spend a lot of time on client selection. And then when we decide that, that's somebody we want to partner with, we really all come together to make that happen.

So is there anything specific today that you're kind of keeping an extra eye on that is of any...

I know [ Ryan Richards ] is on stage right before me, and I know he was talking about what they're doing. Obviously, as we see fraud like they've experienced in others, we're looking in specifically how do we monitor our credits, how do we monitor our collateral, how do we do spot checks. And so we're really looking at some of those fraud situations that our peers have gotten stuck and said, do we have the right controls in place to catch what's happened to them? Tammy talks a lot about field audits in her business, whether it's franchise finance. Mortgage warehouse, there's a lot of talk about [ NDFIs. ] For us, for mortgage warehouse, we do run it a little bit differently. We hold the notes. And so we -- 5 times a day, we get through FedEx. We sit right next to the FedEx hub in Memphis, and they deliver the actual mortgage notes that have been signed to us, and we hold them and then we deliver them to the GSEs. If something happens, we have the collateral.

There's no chance that somebody else has another copy. We have the only copy of that mortgage note. We also -- we pick the closing attorney. So when you look at collision, you look at fraud, we tell them who's going to be at the table that's looking at the ID of the borrower that's making sure when you say it's this person and this is their credit, whatever it is, it's a lawyer and it changes. We don't pick one and say, yes, this is the one for this client, and this is the one for this market. We change those. And so we do run a very different model when it comes to mortgage warehouse than some of our peers. Tammy has been involved in it for a long time now.

Well, and lead fraud just in general. And I would say fraud moves, both consumer and commercial fraud and just staying in front of it, understanding where the fraudsters are going, how you can stay in front of it, having good operational controls and practices is something that we spend a lot of time about. And again, putting eyes on the business, doing field checks, spot checks are all things that are important and a core competency of some of the things that we do.

Consumer fraud is also something that we've had significant investment in the last 2 years. It was one of our core pillars. We talked about at Investor Day, and we said $100 million in technology and increasing fraud. We've probably doubled the headcount there, and I've lost track of how many new projects we've launched. And so we're also investing in that space, both in the people and in the systems to try to help our customers not become a victim of fraud.

It's -- yes, it's rampant. So when I started -- when we started the conversation, I said I want to talk about the 15% ROTCE target. And we just discussed a bunch of really good things that are going on at the bank. And you did actually hit the 15% this quarter, which is great. But can you kind of talk about the pathway and maybe the time line to sustaining the 15%?

You picked up the keyword there. So we did hit 15% in Q4. So we significantly changed our investor deck to say sustained 15% ROTCE -- 15% plus. And I want to focus on that plus. We're not trying to get to 15% and saying that's the end way. We're saying, you said in your opening remarks, intermediate goal of getting to 15% plus. We want to be in the top quartile for ROTCE. And so we're looking at where our competitors going, how can we keep adding value to the company. 2 years ago, we had Investor Day, we said we would be in the mid-teens in 3 years. Q4 of last year, we knew we were going to be in the teens at the end of the year and coming into this year. And so we changed that to 15% plus. So I do want to focus on the plus that 15% starts to become the minimum that we believe we can run our company and create profitability for our shareholders. But there's 3 parts. The first being profitability within our existing business and footprint.

We believe we have a -- we know. We know we have $100 million plus of PPNR opportunities, and that's not expense cuts. That may be doing things more efficiently as you scale and not have to add in a back office or processing as much as you could. But we have $100 million plus of opportunities with our existing clients to deepen relationships to increase spreads at renewal. We've been talking a lot about we partnered our PRO CRE business with our market CRE lenders. And in the first year, we've done that, we've seen renewal spreads increase 30 basis points, 30 basis points plus. And that's because you have a CRE specialist that's now partnering with our market -- our market lender who might do CRE and might do C&I, does all these different things, and they're not a specialist in the market where our CRE lenders are saying, wait, hold on, why you're way low balling this, and they'd say, well, no, no, my client won't accept that.

And sure enough, their client did because their clients' other bids were even higher than ours. And so when we say that $100 million plus, that's with our existing clients. We were running on 2 treasury management platforms earlier this year. We're on one. We're launching new products. We have constant projects where we're launching new products, which means we can sell our existing clients additional feature and functionality that makes their business more efficient and continue to increase. So the first is increasing the profitability with our existing clients. Second is growing our balance sheet, growing our net new clients. The second part of that is credit. We talk about having really best-in-class charge-offs, but CECL modeling doesn't care about what my charge-offs are today or what I think they are. It's about what is the economic outlook, what are the scenarios we base ours on the Moody's scenario, where do they think the economy is going. And so we've had to build provision. We sit at about 9 years coverage at our current charge-off level because of that outlook. We brought down the last 2 quarters.

We have not grown our balance sheet significantly over the last 2 years, but we've held up a lot of shareholder money in that provision that we can now release. Q1 this year was the best analogy of how unique CECL is since it's been implemented. Our balance sheet decreased in Q1, but we had an increase in provision because we had to increase our coverage as the market factors were changing with tariffs. And if you were to tell a CFO or a shareholder, hey, my balance sheet shrunk, but I've got to build provision and my charge-offs are still top quartile, it has not been helpful to our ROTCE. It's artificially hold that back. I think we're going to continue to decrease. Hopefully, we've hit the top of having to build provision. We're seeing that the credit has held up much better across the industry. So getting that credit normalization, we're not having to build provision and the provision is truly tied to existing charge-offs as well as growing your balance sheet. And then the third is capital. We've held 11-plus percent capital. We ended at 11.2% at the end of last year coming out of TD and a lot of uncertainty and having to reinvest in our business.

We said we're going to leave capital 11% for the first year. In the second year, we looked at the outlook and said, we're going to leave it at 11% again. In August, we finished our stress test. We are not required to do a stress test. We voluntarily do it and submit it to the Fed and publish it. And as we look at the stress test scenarios out there, we felt very comfortable to bring it down to 10.75%. Longer term, we believe 10% is the right place to run the company kind of as a floor or a target. So returning that capital back to shareholders with the primary goal being loan growth first to use that capital and share buybacks being second. All 3 of those, every single one of them is moving in the right direction to increase ROTCE every single quarter and every single year.

And so to get to that 10% CET1, what would you have to see to give you confidence? Because I mean, going from 11% to 10.75% isn't -- so it's a start, but there's still a long runway there to get there.

We have a $1.2 billion authorization on shareholder for share buybacks in the next 12 months, which seems like a good rate for our company. So we really want to come from loan growth. To get from the 10.75% to 10%, we want to use it for loan growth. We want to see loan growth get back to a normalized higher than GDP type environment. I think if we see a refi wave, I think mortgage warehouse at the peak in COVID with refis went all the way up to $8 billion. You think about doubling mortgage warehouse and how much capital that would use to bring it down. So our goal would be get to $10 billion when we start to see robust loan growth. I don't want to get to $10 billion by buying shares back and then have to go and issue debt in order to bring it back. So flattish loan growth has required us to only bring capital down with share buybacks.

Okay. That was very helpful. So I do -- so I wanted to ask about the M&A because that's been a constant discussion point. And I think that maybe there was -- I don't know, I don't know how to say it, but some confusion or something from the conference call. So I just -- can you maybe just clarify a little bit of how you're thinking about M&A today?

Yes. I will say we are thinking about the M&A the same way we've been thinking about it since the first day TD called us and made us an offer, which is optionality, and we will look at what's best for our company with the facts and circumstances right in front of us. To your point about the conference call, I can't speculate on exactly what people thought or didn't think. Obviously, there's been a couple of deals announced since then that were obviously rumored out in the market at the same time we were on our conference call or that timing. But for us, we believe the best way to create shareholder value and have opportunity for our shareholders is to run our company for top-tier returns. And if you have top-tier returns and somebody wants to buy you and makes you an offer like we had at a 40% all-cash premium, the shareholders make that much more.

M&A is not a near-term priority. We actually said that on our call. We said that our near-term priorities do not change on our call. We said that at the conference in September as well, our near-term priorities are to get to 15% plus ROTCE and continue to increase our profitability through the -- organically through what we have. But Brian has been asked multiple times on stage and on the call, well, what type of deal would you do? And he said a small tuck-in, and I point back to the SunTrust branches. It's amazing how many of our investors remember IBERIA, I was like, oh, yes, you do SunTrust guys barely talked about that. It's also COVID. But we bought 20-plus branches, and it's somewhat already forgotten because of how easy it is to integrate, how quickly it was accretive. And so I think we can -- M&A is constantly changing. Us of all people never expected a large bank like TD to come offer us an all-cash offer when we hadn't even converted from -- we were running 2 sets of client systems. We still had 2 names out in the book when they came and said they wanted to buy us.

We took the offer. We surely -- and everyone in this room never expected the regulators to decline it 15 months later. And so when we talk of optionality, we've been through a whole slew of things in the last 6 years that you would have never expected. And so we believe the best thing we can do is run our company for shareholder return based on the company we have today and then look at the options as they present themselves.

All right. Thank you. All right. I'm going to just poll the audience and see if there's any questions. We still have about 5 minutes. I think we get a...

Manan Gosalia, Morgan Stanley. Hope, can you talk big picture about deposit competition in your footprint? And then more specifically, post the 2 rate cuts that we've seen recently, how have deposit costs trended since then? I know spot deposit rates were down in the third quarter. But post the October rate cut, have things gone according to how you had envisioned before?

We're seeing the same deposit environment we saw in Q3 and Q4 last year, which is 2 successive rate cuts and another one somewhat expected depending on the hour of the day, whether it's more likely or not in December, is that the clients are aware that rates are stepping back. They're aware that their rates are going to come back. The inbound calls, once we drop those rates, we get some and we sometimes meet in the middle. We've dropped most of our clients back 25 basis points with each cut and a good client calls, their private wealth adviser and there's a discussion. But there's not the competition we've seen in the summer. It's also an environment where there's not a lot of -- none of our competitors are out there soliciting rates with term. So we had seen -- and I know we commented on a lot that we were seeing offers that had rate commitments at Fed -- close to Fed funds all the way through December 1.

There is not any term commitments where our clients are calling us saying, Hey, I just got this flyer and it's near Fed funds and they're going to guarantee it for 6 months. So it is the exact same as how I felt last fall, which is deposit competition has really just kind of quieted down significantly. And I think it will until we think we're through rate cuts. Clients are very aware of those. For us, our commercial clients, 56% of them, as Tyler always gets the number right when I say it wrong because it does move quarter-to-quarter, but it's 56% right now. They just had their loan size repriced down, right? They're all indexed and so that dropped down 25 basis points. So they see 25 basis points on their deposit side, they're okay with it. Now someone will call and say, Hey, how about we -- it's a bid ask. How about we do 20 basis point decrease, you look at the profitability of the client. But -- it has gone well, and I think it will continue to go well.

I think it's when you see loan growth pick up again, you see rates stabilize and the competitive environment picks up. I'm also glad the Fed is going to stop shrinking the balance sheet. A shrinking pool makes deposit competition harder.

John is in the back over there.

Chris?

Chris McGrattycatti from KBW. You talked about the $100 million of tech expenses. I'm interested in what the run rate of technology expenses are in the run rate today and maybe as a percentage of your total expense base, your total revenue base. And also, you talked about the flat expenses next year. So there's conflicting, right, you're investing but pulling back in certain areas.

Yes. So we have not disclosed our tech spend as most banks do. It's kind of one of those things that's a little bit harder to do as you think about tech spend that can be tied to revenue, whether it's a processing fee on a hosted solution, something like that. But when you say it's a contradictory story, let me go back to what we said at Investor Day. We have some tech investments we need to do and then we will take that out of the run rate. Most of those tech investments, except for my system that brought absolutely no value to the bank, it came with a revenue commitment by the business or it came with an expense synergy, whether it was -- I guess, I did have some savings. So we had some people that supported GL in technology that have now been redeployed to another system because now that we're in the cloud, there's nothing for them to do. So I guess maybe I should start taking credit for that, Tammy.

I have to call over to Mohan and ask him how many people he's been able to redeploy. But those projects, in addition to increasing our run rate, they created either revenue or cost saves. What we're doing instead of bringing costs down is reinvesting that savings back into the company in the form of bankers, new products, as I mentioned before, we did get to one treasury management system, but we're launching and enhancing products almost on a quarterly basis there. And that comes with revenue tied to it.

What I would say is development in the cloud costs have come down. They're not as lumpy in technology. Used to do big data center transformations or large general ledger. We're getting ready to do human resources. All of those kind of things took large investments that now move to a subscription base, which is much more digestible over time. So I would say the one number we are going to continue to talk about is how much are we investing in what we call change the bank stuff because that's really when you're enhancing client experience, banker experience are the places where we believe, to Hope's point, there's a business case that goes with that. There's also a business case for run the bank. I mean you got to keep the lights on, but we're really excited to be able to continue to shift to do more client-facing type stuff. And we have the money we need even on a reduced run rate going forward. We have the money that we need to do those client-facing projects.

All right. I think we're out of time. Yes, I think we're out of time. So thank you very much for coming and sharing your story with us...

So appreciate you as well.

Yes. So this concludes the day. We will start tomorrow morning at 7:30. So hope to see everyone again first thing in the morning. Thank you.

Good morning all, and thank you all for attending the First Horizon Third Quarter 2025 Earnings Conference Call. My name is Brika, and I will be your moderator for today. [Operator Instructions]

I would now like to pass the conference over to your host, Tyler Craft, Head of Investor Relations at First Horizon Bank. Thank you. You may proceed, Tyler.

Thank you, Brika. Good morning. Welcome to our Third 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 to other non-GAAP measures. Therefore, it's 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 them.

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

Thank you, Tyler. Good morning, everyone. Thanks for joining us. We appreciate your continued interest in First Horizon. I'm extremely pleased with our performance this quarter, highlighted by strong adjusted EPS of $0.51 per share. We continue to deliver excellent returns for our shareholders and execute on our priorities across the franchise, focusing on safety and soundness, profitability and sustainable growth.

Thank you to our associates and clients for their continued dedication and trust in First Horizon.

I'll invite Hope to walk through the financial results, and I'll share my perspective on the rest of the year and the broader economy at the end. Hope?

Thank you, Bryan. Good morning, everyone, and thank you for joining us today. I'm excited to share the details behind another great quarter for First Horizon. Getting started on Slide 5 with some of our key performance metrics. We generated an adjusted earnings per share of $0.51, a $0.06 increase from last quarter. This earnings growth increased our adjusted return on tangible common equity by 135 basis points to 15%.

Moving ahead to Slide 7. We cover our $33 million of net interest income growth and the 15 basis point expansion of net interest margin. NII growth benefited from average loan balance growth, including our high-yielding mortgage warehouse business, which contributed to a 14 basis point expansion of total loan yield and drove margin expansion to 3.55%. NII and NIM this quarter also benefited from the recognition of interest income associated with increased accretion related to the Main Street lending program. This impact is primarily concentrated in the third quarter.

On Slide 8, we provide more information about our deposit performance in the quarter. Period-end balances decreased by $52 million compared to prior quarter, driven by a $652 million decrease in brokered CDs, offset by growth in index and promotional deposits, which reflect loans to mortgage company seasonality. We did see growth within noninterest-bearing deposits as period-end balances were up $131 million. Retention continues to be a highlight for our deposit story as we retained approximately 97% of the $29 billion in balances associated with clients who had a repricing event in the quarter, while continuing to reduce our costs on those deposits even in a flat rate environment.

For deposit pricing overall, the average rate paid on interest-bearing deposits increased to 2.78%, up from the second quarter average of 2.76%. Our objective is to achieve consistent betas through the cycle as the rate environment evolves. Please keep in mind that there is a delay between Fed rate moves and deposit rate adjustments as we work through client repricing.

On Slide 9, we cover our loan portfolio performance. Period-end loans were down slightly from prior quarter. Loans to mortgage companies decreased $132 million during the third quarter, which is in line with our normal seasonality that peaks in the middle of the summer. This portfolio continues to be roughly 3/4 purchase transactions versus refinances. To the extent that mortgage rates decline in a falling rate environment, refinance activity could pick up. We saw growth again this quarter in our C&I portfolio with period-end balances up $174 million quarter-over-quarter.

We continue seeing CRE balances decline in line with the longer-term pattern we've seen of stabilized projects moving to the permanent market. Importantly, we remain focused on growing higher profitability relationships. We see this in relationship depth with our clients and yields in our loan portfolio with spreads from the mid 100 basis points to the upper 200 basis point range. This overall growth pattern is consistent with our expectations for average loan balance growth in 2025.

On Slide 10, we detail our fee income performance for the quarter, which increased $26 million from the prior quarter, excluding deferred compensation as improved business conditions led to increased customer activity for FHN Financial. We saw ADR increase to $771,000, and drive fixed income fee revenues of $57 million. Mortgage fees increased by $6 million, driven by an MSR sales during the quarter.

On Slide 11, we highlight that excluding deferred compensation, adjusted expenses increased $45 million from prior quarter. Personnel expenses, excluding deferred compensation, increased by $9 million from last quarter, driven by $6 million in incentives and commissions growth on the improved ADRs. Outside services increased by $8 million, with the largest driver being project expenses and technology and risk, partially offset by declines in advertising as prior quarter campaign costs moved to new account promotion payouts within other expenses.

Expenses this quarter reflect a contribution of $20 million to the First Horizon Foundation. This higher amount for the contribution we typically make to our foundation maximizes the relative tax advantages available for contributions made in 2025.

Turning to credit on Slide 12. Net charge-offs decreased by $7 million to $26 million. Our net charge-off ratio of 17 basis points is in line with our expectations for the year. Loan loss provision was a credit of $5 million this quarter. This resulted from loan payoffs and the ACL to loans ratio declined to 1.38% as we saw criticized and classified loans declined and balances grow in lower risk categories. Our 2 basis point increase to NPLs is relatively flat, and we feel confident in continuing long-term credit trends and success in problem loan workouts.

On Slide 13, we ended the quarter with CET1 of 11%, which is flat quarter-over-quarter. When we completed our annual stress testing during the quarter, we noted that our updated near-term target will be 10.75%, and we intend to make progress towards this target in the coming quarters. With loan balance declining in the quarter, our share buybacks accelerated to $190 million with approximately 8.6 million shares repurchased. We have more than $300 million in remaining buyback authorization for our current program.

On Slide 14, we take another look at our full year 2025 guidance. We remain confident in achieving year-over-year PPNR growth. We maintain our revenue guidance. The NII benefit this quarter discussed earlier and countercyclical fee income from FHN Financial provide offset to the asset sensitivity of our balance sheet in this falling rate environment. Our expense guidance remains unchanged. With a significant foundation contribution noted earlier and the potential for increased commissions driven by ADR growth as that business has accelerated in the third quarter, we currently expect that expenses may finish 2025 at the top end of our current guidance range.

As we noted in our stress testing press release, in the near term, we are targeting 10.75% CET1 as we continue progressing towards our long-term normalized CET1 target. Our outlook for charge-offs and taxes remain unchanged as we close out the year.

I will wrap up on Slide 15. We are proud of our performance, our 15% adjusted ROTCE this quarter and to see our countercyclical business model support profitability as we enter a declining rate environment. Through continued capital normalization, the value generated by our credit culture and performance, and most importantly, our ability to execute on creating value through efficiency and revenue enhancements like those aligned with our $100 million-plus PPNR opportunity. We are confident in our ability to hit our near and long-term targets. Our target for the coming year remains achieving a sustainable 15% plus adjusted ROTCE.

And with that, I will give it back to Bryan.

Thank you, Hope. We're starting to see activity pick up overall and the economy continues to perform reasonably well. On the whole, our clients are growing more confident in navigating tariff uncertainty, and we're seeing their willingness to take action flow through to solid pipeline momentum.

Now that we have been -- we have seen the Fed initiate rate cuts, the potential for more to come, we are optimistic that this will drive growth across a broader economy and is an important opportunity for First Horizon to capitalize on profitable loan growth across our diversified lines of business in the coming quarters.

This past quarter, our organization continued to make meaningful progress, positioning First Horizon for the future. We invested further in our systems, technology and processes, which enables us to deepen client relationships and deliver our broad financial capabilities with a community banking approach. Our bankers continue delivering our relationship approach to our clients. The third quarter was our highest origination funding quarter in the last 2 years.

Bank M&A activity clearly accelerated in the third quarter. While our near-term focus is unchanged. I am increasingly confident in our ability to integrate a well-structured merger with a strong cultural fit in our existing footprint if such an opportunity arises in 2026 or beyond.

Our team's energy remains high. Our strategy is clear and our competitive position in our attractive southern footprint is enviable. We see continued strength in both our credit trends and our capital outlook.

Forward-looking, we remain focused on executing the initiatives that result in more than $100 million of additional pretax net revenue. We expect to drive sustained profitable growth supported by our balanced business model and our unwavering commitment to safety, soundness and serving our clients. Our goal of delivering sustained 15-plus percent adjusted ROTCE remains firmly in sight, powered by the hard work of each of our associates. Their dedication and resilience continues to drive our momentum and success.

Brika, we can now open it up for questions.

[Operator Instructions] The first question we have from the phone line comes from Jon Arfstrom with RBC Capital Markets.

Bryan, maybe we'll just start the call with -- you talked a little bit about the activity picking up and some pipeline momentum. How optimistic are you on growth? And is it really -- is it a noticeable change from a quarter ago?

Yes, it has picked up. There is more confidence and it is noticeable. And I would say it's yet to be seen how anything that occurs with the new friction around Chinese tariffs may impact things. But we did see confidence building throughout the quarter and pipeline beginning to build in the middle of the quarter and beyond. And so it has been a noticeable change. Customers are more confident and more forward [ leaning, ] lower rates and the trajectory of rates added to folks' confidence. I see no reason in the immediate near term that, that ought to [ solve, ] and it looks like it's sustainable at this point.

Okay. Good. And then Hope, one for you. Just on the margin. It surprised us positively, it feels a little bit elevated. Is there a better starting point for the margin for the fourth quarter, given the Main Street impact and the mortgage company impact?

Jon, great to hear from you. Thanks for that question. Yes, we did have, as we note in our earnings slide, a onetime adjustment this quarter that did increase our margin. Last quarter, we were at 3.40, and I think that's a good way to think about, in the high 3.30s and 3.40. We've been pretty consistently there for the last few quarters and even this quarter, if you adjust out that one time item.

Your next question comes from Michael Rose with Raymond James.

Michael?

Michael, could you please ensure your line is unmuted locally before speaking.

Brika, why don't we go ahead? Yes, we'll go ahead and we'll come back to Michael later maybe.

Your next question comes from Casey Haire with [ Autonomous. ]

I wanted to touch on the core -- the deposit franchise on Slide 8. I know there were some seasonal challenges this quarter, but just looking at the trends, the core deposit franchise is down almost 8% over the last 2 quarters. Just what is driving this? And what is being done to kind of stabilize or reverse the trend and sort of the outlook?

Yes, Casey. I'm not sure exactly what you're calling core deposits. We really pull out brokered and wholesale in the deck in order to really show the match funding that we do with mortgage warehouse. But H8 data is slightly flat to decreasing. The deposits in the industry are shrinking, specifically out of banking. We mentioned in our last earnings call that we saw a mix out of money markets and we looked at where our clients are tranching their funds, it was into brokerage accounts.

And so I think the competition for deposits will continue to heat up. We talked about last quarter and this quarter's prepared remarks that we are have a high retention rate of our existing clients, and we put additional money into marketing and cash offers in order to increase new to bank clients. But deposit competition has been significant this year as you've seen, especially as it comes to rate and bringing that rate down on existing customers. It's really a balance that we focus on. How do we keep existing customers with a fair rate through this environment.

Okay. All right. I'm referring to like the DDA and the base rates, right? That's like -- that's down 8% over the last 2 quarters. That's definitely below -- that's definitely lagging H8. And you guys are talking about keeping beta consistent with the prior cycle. It just seems kind of a challenge with the loan-to-deposit ratio at 97% and the core deposit franchise under pressure.

Yes. Casey. On Slide 8, if you look at the stacked bar chart, third quarter 2024 noninterest-bearing deposits, which is really a lot of our DDA and our customer money there, it went from 9.2 to 11.4 in a year, and I don't see that as decreasing. DDA is just a subset when you look at price [indiscernible], but we are focused on growing that noninterest-bearing deposit core, and we've continued to see momentum quarter-over-quarter as illustrated on Slide 8.

Yes, Casey, we've feel very good about the core deposit franchise. We feel very good about the retention of customers and particularly, our ability to adjust our repricing. We are mindful of the loan-to-deposit ratio. And that's one measure. But I think when you look at loans and securities to total deposits, our comparisons are much more in the middle of the pack. .

We feel good about the momentum we see in the business. We have a significant focus on our core consumer banking business. We have recently hired a new Head of Consumer Banking. And we see very good momentum there. And it's easy to conflate what's happening in wholesale and brokered with what's the core franchise, but we feel very, very good about the progress we're making there and have a very optimistic outlook as we look into '26 and beyond.

Casey, one note. I think you made -- I'm trying to figure out your question. I think you may be talking about the promotional deposits and CDs. That is a subset that we show for what the opportunity is to reprice down during a decreasing rate cycle. A lot of those do go to base pricing and are somewhere else in the chart. So it may be a correlation that's not a causation, and we are trying to bring new to bank clients down to base rate, and then they fall out of that bucket over time.

Okay. All right. And just last one for me, Bryan. I wanted to touch on your M&A comment. So in terms of what you guys would be looking for in terms of size and geography if a bank acquisition were to present itself in 2026.

Yes. Yes. I want to be really clear and sort of reiterate where I started. Our near-term priorities are not changed, and we're very focused on driving the $100 million of incremental pretax pre-provision and continuing to focus on executing our business model. Given that the M&A environment has picked up and the progress we're making on the foregoing, I feel very good about our ability to integrate if the right opportunity does present itself in '26 and beyond.

That said, I tried to focus my comment on the fact that we are very focused on the footprint that we're in, that is a fill-in opportunity with a strong deposit franchise. It gives us the ability to leverage our middle-market consumer, our middle market commercial, consumer, private client, wealth businesses across that. So cultural fit is very important. But our short-term focus is unchanged. We're very focused on executing the business model. Just really mindful of the fact that the environment has changed and that we will be opportunistic if it presents itself in '26 or later.

We have a question from Ben Gerlinger with Citi.

I just wanted to kind of follow up on Michael's question regarding M&A. It seems people have kind of implied that First Horizon would be a potential seller down the road, given [indiscernible] has happened [indiscernible] I guess you could say. But when you think about just the environment, it seems like bigger deals are more involved and more accepted by regulators. When you think about the opportunity in front of you and shareholder value, I mean are you taking yourself off the table? Or is this more so just kind of positioning if something smaller did come up that you could potentially be buyers? Just trying to think about -- I mean, the share price is down quite a bit in your comments. .

I'm sorry, the last part broke up, Ben.

Based on your closing remarks, when you talk about being a potential buyer yourself. It's taking the -- your share price down a bit because it's not really what an implication of people thought might happen. Just hopefully, you can expand a little more.

Well, I don't think that I intended to change anything that we have previously said other than to enforce the idea that we are making progress on the priorities that we have laid out and that we are increasingly confident that given the right opportunity in our footprint that we could be in a position to do that. It is clear that with recent approvals and the otherwise enthusiastic M&A environment that the regulatory backdrop seems to be improving.

In terms of our thinking about our franchise long term, I've tried to be very consistent on this point over 18 -- roughly 18 years, which is that we are very focused on creating value for our shareholders, both near and long term that we believe we have to operate the franchise with a long-term mentality. And that means focusing on building the business in our case for the next 161 years and investing in that regard.

I don't believe that changes any of our optionality. And while we were not for sale in the early part of 2022, we received an offer that our Board did the right thing in considering that alternative and the various alternatives and the need to create maximum value for shareholders.

And so I'm not changing anything about the future, just saying that we're in a much better place today than we were 6 months ago. And they've given the changing environment to the extent that opportunities present themselves, we're in an increasingly improving position to consider fill-in opportunities in our franchise.

Got you. That's helpful. And then just in -- on a core basis, Hope. It seems like you said the Main Street lending program added roughly 7 bps. So I mean, when we think about a starting point for fourth quarter and into next year, kind of the high 3.40s, [indiscernible] an appropriate level. But when you think kind of just the cadence and potential cuts in October and December, you talked about repricing and deposits, how do you think we should position the margin movement, especially with mortgage warehouse is a seasonal outflow over 4Q or particularly [indiscernible]?

Yes. I think in the nearer term, Casey, the high 3.30s or low 3.40s is the way to think about us. That's where we've been the prior 2 quarters. And if you adjust out the Main Street lending program terminations, that would bring us down to the low 3.40s this quarter.

As far as repricing the deposits, I would expect it to look a lot like it did last year where in Q3, we saw the rate cut. And then in Q4, we picked up the beta. I don't know if we'll have an October cut or December, but that repricing will always lag.

To my earlier comments about Slide 8, I think we may have confused people about core deposits versus noncore deposits and trying to show the opportunity to reprice. We particularly took out the added in the index bar, which shows what we can reprice down more real time. And then the promo, [ $13.6 billion ] of promo deposits and CDs that will reprice at promo exploration down with each rate cut. So we've seen a high 60, low 70 beta, and we are targeting, trying to continue that trajectory as we go into a falling rate environment.

Sorry, Ben. One correction. I was looking at my chart wrong, it's $22 billion of promotional deposits and [ 13 ] of [indiscernible]. I inverted that. So apologies for that.

We now have Anthony Elian with JPMorgan on the line.

Hope, you had a strong quarter on both NII and fees. But in your remarks, you maintained the revenue outlook of flat to up 4%. I know you noted that expenses may trend at the high end of the range. But given the strength you saw in revenue in 3Q, I'm wondering if you also expect revenue to trend closer to the high end of the range or if there's a level of conservatism in your outlook?

Yes. I think if you look at the fact that we have 9 out of the 12 months base and you look at what our year-to-date results are, we'll absolutely be short of any unexpected event in the next 2.5 months, we would expect to be towards the higher end of the revenue range. The one that I can't predict well right now is FHN Financial. They had a really strong fixed income quarter, specifically a really strong September. In the last 2 weeks, we've seen that come down pretty significantly, partially, we think, due to the government shutdown. But I think to get to the higher end of that range, we would need FHN Financial and have a similar quarter to Q3, if not better.

And then one on credit, maybe for Tom, if he's on the line. There were several questions on the large bank calls yesterday on their loan exposure to [ NDFIs ] given growth in that category over the past several quarters. I think your loan exposure to [ NDFIs ] is a little over 10% for the call report. Just given what's happened in the past several weeks, is this a loan category you're doing a deeper dive on now? Or anything more broadly on credit?

Anthony, I am on the line, and thanks for the question. If I look at our NDFI book, I mean this is an area we've always, even before recent events, always monitored very carefully and looked at. Overall, I kind of break our NDFI book into 3 separate components. Our consumer lending portion of NDFI actually remains very, very strong. There's a very low amount of our CNCs.

I think kind of -- I would specifically more focus on, based on the recent events, on our consumer financing portion of that. That's where kind of our auto and retail financing would fall into. For us, it's a relatively small book. It's only about 2% of C&I or about 1% of total. And there are some elevated [ NPLs ] and new [ prospects ] in that book. However, it's all well within control. And we also have a lot of expertise and a lot of history in this space. And so one thing I would point to, for example, is we've always maintained a full-time team, the field examiners that are consistently out of our customers' on-site visits. That team has an average of 18 years experience in the space. And between that team and outside vendors, we're on site 1x to 3x every year at our customer sites to examine the collateral.

Your next question comes from Jared Shaw with Barclays Capital.

I guess maybe sticking with credit. You talked about the broader improvement in the criticized and classified. Did you change any of the assumptions on the macro side for the CECL analysis driving that allowance? Or is it all just sort of fundamental loan by loan improvement?

Yes. So on the seasonal modeling process, we use Moody's analytics for running our macroeconomic scenarios. There is some management judgment in terms of our weighting between the baseline and the upside and the downside scenarios. But like I said, largely, we really follow Moody's Analytics.

I think maybe what you're driving at is regarding the decrease in ACL that we had this year. Some of that is individually loan driven. I think you probably noticed our criticized assets are down about 9% or $330 million on the quarter. So we've certainly seen some good overall positive grade migration that's contributing to that. And so it's partly that and as well as the updated Moody's analytics outlook.

Okay. All right. And then on the loan growth, you referenced -- Bryan, you referenced the pay down of construction and move over to permanent. I guess at what level or at what point could we expect to see net growth in CRE?

Yes. So Jared, that's a business that is, as you know, you originate a loan, and it funds up over 2 or 3 or 4 years, and that pays off all at once as it goes into the permanent market. So it has a bit of a spring loading effect over time. We are starting to see with lower rates that those pipelines have built. The third quarter origination activity was significantly better than earlier in the year. So we're seeing progress. And as those projects fund up, you'll start to see it come into equilibrium. I would expect you'll have another quarter or 2 of continued paydown payoffs, but we're starting to see borrowers lean in a bit more.

Tom, I don't know if there's anything you'd add to that.

No, I think that's right. That's really kind of the effect of a more construction heavy portfolio on our CRE side.

Okay. And then if I could just ask a final one. On the Main Street accretion, was that related to loans acquired through IBERIA and just accretion at final payoff? Or what was -- I guess what was driving that outsized accretion this quarter?

No, it's not related to IBERIA or an acquisition. The Main Street lending program is coming to an end, and they gave banks the opportunity to repurchase those loans for existing clients. And so we had some existing clients that were part of that program and we repurchased below or purchased a lot of [indiscernible]. It's now on our balance sheet position from that loan hitting our balance sheet at the end of last quarter.

Okay. And that's all wrapped up. There shouldn't be a tail in the fourth quarter with that?

Correct.

We now have Timur Braziler with Wells Fargo.

Sticking to the M&A theme, it's been a couple of months now since the Pinnacle-Synovus announcement. I'm just wondering what you're seeing in terms of fallout from that transaction. Is that increasing competitive nature on loans, deposit, talent? Just maybe talk us through kind of the first couple of months post that deal.

Yes. I think it's too early to see an awful lot of impact from that. I would say that the environment for lending, in particular, and people to a certain extent has really experienced [indiscernible] team has gotten tighter over the last couple of quarters. You see it in pricing, in terms and structure. So it's a competitive environment. And I think it goes back to we've had a significant shift in the last, call it, 2 years from people wanting to bring down risk-weighted assets to a real emphasis on growth and growth in lending. .

We think that the environment is pretty constructive as we look into 2025 -- the rest of 2025 and into 2026. We've had very good success in recruiting bankers and we continue to talk to bankers all across the franchise. And we're looking to be very, very focused in growing the franchise by focusing on our commercial middle market banking, our specialty businesses, our private client wealth teams, and we think we are well positioned to do that over the next, really, several quarters.

Okay. And then, Bryan, your comment on potentially integrating a well-structured merger. I mean that's a little bit more pointed than in the past in terms of First Horizon maybe looking to engage in M&A here in the next couple of years. I guess what does that mean for just the potential pool of buyers out there? I know recent quarters, the comment has always been that there's just not that many logical buyers kind of lined up. Is this further reinforcing that statement? And I guess, is that really the driver here? Is that there's lack of logical buyers and then therefore, you got to just keep going and kind of consider all possible options on the capital front? I'm just wondering what changed in terms of making that more pointed comment on the M&A side.

Yes. I think it's really much more narrow in that, one, the regulatory environment and particularly, the bright line around $100 billion or Category 4 and a total asset seems to be a little less bright and potentially can be moved up over time and significantly easier to deal with.

Two, the approval process is significantly quicker than it has been in the not too distant past. And so that's a positive. And there do -- does appear to be more activity in terms of institutions thinking about what the future may look like. And as we look at our footprint, it is an opportunity to potentially gain a bigger foothold in some of these very fantastic markets that we have across our franchise.

With respect to our longer-term thinking, it really is not a change. We are very focused on deploying capital in the business. We want to focus first on deploying that capital on an organic basis. M&A is an alternative to deploying that capital, but it is not our priority. Number one growth is focused on organic deployment of capital in our franchise, and we think we have a number of growth opportunities.

I don't think it changes anything about the optionality we have as an organization. We believe we create maximum shareholder value by deploying capital in the business, growing and building for the long term. And we don't think that in any way changes other alternatives that are available.

So the big shift is the environment has changed significantly in the last several quarters. And the bright line seems to be a little less bright and approval processes and the ability to announce the transaction and get it done in a timely manner seems to be better. And so while I said earlier that we're not making a big shift in the near term, I am saying that given that backdrop, who knows what happens in '26 and '27 and beyond.

We now have Ebrahim Poonawala with Bank of America on the line.

This is [ Eric ] on for EB. Hope, you mentioned kind of the 15% ROTCE target next year. I know you guys have talked previously kind of about expenses at a high level for next year. Can you just talk about as we head into '26, kind of what you need to do to hit that 15% to achieve that? And kind of what's baked into being able to kind of get there?

Yes. Our last slide in the deck shows the 3 components pretty clearly. The first is bringing capital down. We have a near-term target of 10.75, which we're working towards after we successfully completed our stress testing. Longer term, Bryan, and I have been very public. We think 10 to 10.5 is the right capital level for our balance sheet. .

The second is credit normalization. We've been building provision for 2-plus years now for charge-offs that haven't materialized that we don't expect that we will see [ spike. ] We've given guidance this year, charge-off between 15 and 25 basis points, and we're coming in on the low end of that. And so not having to build provision and being able to have a more normalized credit cost we build our balance sheet. And as for our PPNR growth in our existing book, we have $100 million plus of opportunities that we expect to get out of our existing client base and franchise over the next 2-plus years.

Okay. Got it. That's helpful. I guess as the follow-up. I was curious just about capital. CET1 kind of at 11%, you've said 10.75% is kind of the near-term target. And Bryan, maybe kind of with respect to the M&A point, is that excess capital? I mean you talked about your buyback capabilities. Are the deals you're thinking about kind of tuck-in? Or are they larger deals that could be done in 2026?

I think as we sit here today, if we use capital for M&A, it would largely be tuck-in. We think we have significant growth opportunities to invest organically in the franchise, and we really do believe that buyback opportunity, returning capital, repatriating capital to shareholders through that program gives us the tools or the flexibility to manage our capital levels. We talked to our Board consistently about capital, capital adequacy and how we deploy excess capital. And we're not making any significant shifts in the way we thought about it for a number of years. .

Got it. Okay. Yes. A lot of M&A questions. The stock is down 12% right now just because of that [indiscernible], I think. So I wanted to make sure that you have the chance to kind of clarify those comments.

Yes. I mean, I'll reiterate what Bryan said. We haven't changed our stance. We've been talking about opportunistically, what has changed is that there are smaller banks that are selling in our footprint. And the comment was meant to note that we are able to take advantage of that with our strong franchise and reiterate what Bryan said earlier. We were not for sale when TD brought us an offer, but our Board looked at it and did the right thing. I think we might be over indexing a little bit on a couple of comments Bryan made about a changing M&A environment. We have not changed our stance on optionality. .

We will now move on to the next question now. We have Chris McGratty with KBW.

This is Andrew Leischner on for Chris McGratty. Just going back to capital. As you make progress towards that updated 10.75 CET1 target, will buybacks continue to be more of a function of where loan growth lands in any given quarter? Or will we take greater appetite for those buybacks going forward?

Yes, absolutely. The first priority is to grow the balance sheet with loan growth. And so as we put out the target for our share buybacks at the beginning of the quarter, we look at what our forecast is for loan growth. And then what capital we cannot deploy for loan growth, we then deploy the share buyback second.

We now have Christopher Marinac with Janney Montgomery Scott on the line.

Bryan, I know Tom talked about NBFI loans earlier. I was just curious about the deposit opportunity with these customers, particularly outside of the mortgage finance channel. Is that an area that you can grow in the treasury area and otherwise?

Yes. That's an area where we've had a tremendous amount of focus over really the last several years, and we have made significant progress with respect to our focus on deposit gathering activities in our specialty lines of business more broadly. I think in our supplemental information, you'll see that the loan deposit ratio is very high, it's not relative, it's not relatively high, it's very high. But we've made progress in that regard.

Those businesses have traditionally been more lending-oriented. They are very, very attractive because they have attractive competitive dynamics. We have deep expertise and knowledge in those businesses. And we have made progress, and I expect that we will continue to make progress penetrating deposits. We've put in place treasury management products that make it significantly easier with the ability to gather those deposits. So I feel good about the focus and the progress, and I expect that we will continue to see that deposit growth.

We have a question from Janet Lee with TD Cowen.

I know you guys touched up on FHN trading revenue before, but I want to just get more color. So most of the strength came in September, it seems. But is that sort of around when the rate cuts came? Because when I look at the shape of the curve, looking at the 2 to 5 and -- the spread between the 2-year and 5-year. The average spread hasn't changed that much in the third quarter versus 2Q. So I'm trying to understand what drove the 40% increase in ADR in the quarter and the sustainability of the level going forward? Or if the strength had anything to do with more securities repositioning from the banks?

Janet, we saw the momentum pick up really the 2 weeks before the rate cut as the Fed started to strongly signal that we would see a rate cut, and we saw it continue through early October, first week of October until the government shut down. And so I don't believe and we have not heard that it's a ton of balance sheet repositioning. We typically tend to see that at the end of the year. We've commented in our last 2 years in our earnings that in Q4, we saw FHN Financial pickup due to balance sheet restructuring at year-end, but I don't believe we had much of it this quarter.

As far as the ability to maintain it, I think whether we see a rate cut this month or in December would be positive for the business as well as the shape of the yield curve, which is moving around a lot right now in the last week or 2 as we look at both the tariff impact and the government shutdown impact. I'm hoping it rebounds from where we've been in the last 2 weeks.

Okay. Got it. That's helpful. And in terms of the other C&I balances, excluding the loans to mortgage companies, so that increased this quarter, but roughly at half the pace reported in the second quarter. Has anything changed? I know that Bryan commented that the pipelines are building. But is there anything to read from the change in C&I loan growth this quarter versus the last quarter? And are you -- do you still expect that sort of mid-single-digit loan growth in 2026 is a reasonable place to be?

Yes. No, I would say there's no significant change third quarter, second quarter. In the second quarter, our C&I balances, excluding mortgage warehouse was up over $170 million. So I think that reflects good momentum. When we're talking kind of 1 point difference quarter-to-quarter, that's a matter of just a couple of deals. And so that's just a little bit of inherent lumpiness. But overall, we have really good momentum in our C&I and in our CRE channels.

And with respect to the 2026 outlook, I'm still comfortable with the mid-single-digit loan growth numbers. And clearly, we've -- as I said earlier, we're expecting a turn in commercial real estate lending as rates have come down and projects pencil out better and the momentum that we're seeing in the organization. So yes, we're still comfortable with what I said several months ago about 2026. .

Got it. And my last question is just following up on M&A. Would you -- for potential M&A opportunities, would you look at contiguous footprint? Or is it focused on your core footprint? And also in terms of the timing, would you be comfortable crossing $100 billion without the regulatory -- I mean without the asset threshold being lifted above $100 billion?

Yes. So a couple of thoughts. One, I said near term, nothing's really changed. So I think this is -- if anything, it's '26 and beyond. But yes, we'll be focused on our core franchise. And two, I'm increasingly confident that the ability to cross $100 billion is significantly better than what have been 18, 24 months ago. .

[Operator Instructions] And we have another question from Nick Holowko with UBS.

Maybe just one more on M&A. I know that you've flagged in the past, the PPNR opportunity, $100 million plus over the next couple of years here with a chunk of that at least stemming from residual opportunity because of the IBERIA, First Horizon merger. Do you feel like you need to realize a significant portion of that $100 million plus opportunity prior to engaging in any further M&A?

Well, it's been our focus to be well down the path. And as we continually have said, it's $100 million plus in pretax pre-provision. We are in the process of realizing that. And my message this morning is we are making progress in that regard. I feel good about the progress that we are making and that we are likely to make, and that gives us increasing confidence that if anything presented itself in terms of a fill-in opportunity that we would be in a position to execute on both.

Understood. And then I guess, looking out to '26 and the potential for flattish expenses there, ex any changes in the fixed income business. Can you just touch on how you're thinking about balancing expense discipline versus investing, especially as you think about the possibility of being a much larger institution.

Yes, I'll start, and Hope can point it up, I suppose. Look, we think we have the ability, given the levers that are in place and particularly some of the investments that we've been making over the last couple of years to deliver on flattish expenses caveated as you appropriately did with the fee income businesses. So we can deliver on that, that we can continue to invest in technology, infrastructure and continue to deliver superior customer and associate experiences, and that we can do all of that and maintain flattishness. That does include continuing to build the capability to be an LFI or category for banking institution. So our outlook for expenses does not, in any way, inhibit our ability to continue to build the franchise for the long term and continue to build it in a way that delivers for our customers, communities and for our associates and shareholders.

I think Bryan said it well. I'll reiterate, we are still investing with flat expenses. We do have tanker growth built in there. We have [ de novos ] that are opening later this year and next year. Bryan mentioned earlier, hiring a new retail head that is also going to make some investments back into our franchise. We announced 2.5 years ago that we would have a 3-year $100 million investment back into our technology. Those investments do come with additional revenue and cost saves. We're getting to see as we come to complete that third year, we're seeing the benefit of those efficiencies. We've also made many strategic decisions that decrease our operating costs. We've talked before when we've had some restructuring charges in our earnings about outsourcing our facilities management to [ JLL, ] our broker-dealer partnership with LPL. All of these things are items that help us drive efficiencies in our expenses while raising revenue.

Our final question comes from Jon Arfstrom with RBC with a follow-up.

Annoying here Bryan to talk about this. But I think you're saying you can run the company -- you cannot run the company as if someone larger like TD is going to come in with a big premium in the near term. You have to keep looking ahead growing the franchise. If a small deal comes up, you consider it, if it enhances franchise value, a big premium comes in next week or a year from now, the Board would consider it. But if it doesn't happen, you can't just sit there and wait. Is that -- I know it's annoying, but that's the message, right? Really, nothing's changed in terms of your approach?

Yes. Yes, absolutely, Jon. You said it much more articulately than I've said it this morning. Nothing has changed in our view. We believe we have to run the franchise for the long term. And that does include considering deploying capital and fill-in acquisitions. We believe that very strongly that if we create value by delivering high returns, improving profitability, growing the franchise and capitalizing on one of the best footprints we believe in the banking space, that not only keeps our optionality open, but it doesn't take any off the table. So I think as you articulated, we don't see ourselves limiting our optionality in any way by continuing to invest in delivering the franchise.

We now have another follow-up from Anthony Elian with JPMorgan on the line.

Bryan, one more on M&A. And I'm curious, you kind of emphasizing in-footprint, existing footprint. But if I think IBERIA and Capital Bank, they expanded your footprint to the Carolinas, Texas, Louisiana. So I'm curious, why put the emphasis on in-footprint this time around in your prepared remarks?

Yes. Anthony, it's really, in many ways, very, very different. If you think about Capital Bank, for example, we were largely a Tennessee-based franchise at that point in time. And that really enhance our small presence in the Carolinas, expanded South Carolina, in particular, in Florida. IBERIABANK sort of rounded out that footprint. And today, we have a geographic footprint that broadly ranges from Texas to Florida to Virginia to Arkansas and back to Texas. And and we look at the growth and the opportunities in that footprint, it really seems the place that we ought to focus. And we don't see anything at least immediately that says we ought to try to expand upon what is one of the highest growing parts of the U.S. economy. .

Thank you. I then confirm that does conclude our question-and-answer session today. And I would like to hand it back to our CEO, Bryan Jordan, for some final closing comments.

Thank you, Brika. We appreciate everyone joining us this morning. We appreciate your time and your interest. If you have follow-up questions where you need additional information, please do not hesitate to reach out. Hope everyone has a great day. Thank you.

Thank you all for joining the First Horizon Third Quarter 2025 Earnings Conference Call. Today's call has now concluded. You may now disconnect, and please enjoy the rest of your day.

Great. Good afternoon, everybody. Thanks for joining us. We're excited to have First Horizon Corp here, an $82 billion bank, headquartered in Memphis, Tennessee. We're joined by Bryan Jordan, the Chairman, President and CEO; and Hope Dmuchowski, the Chief Financial Officer. So thanks a lot for being here today.

Thank you for having us.

I guess maybe just to start it off, just a quick update on how things are going so far in the quarter. Maybe an update on characterizing the current sentiment in the footprint, especially after some of the more recent economic developments?

Yes, Jared, I think as we mentioned in the second quarter, we were seeing a general trend line upwards. There is more activity. Clearly, I think people have gotten more confident with the tariffs and how they play out in broader terms from an economic perspective and the ability to do business, et cetera. So I'd say, generally speaking, the economy is doing reasonably well. Our footprint is enviable in the sense that it's in a very good, high growth, favorable labor tax portion of the country, and we're seeing that play out on a day-to-day basis. .

There's been a lot of news in your geography over the last month or so. Can you talk through the competitive landscape in your markets? And how you see that potentially migrating and changing?

Yes. The competitive landscape in this footprint, what we have in the South, has always been competitive. And I think it will always be competitive, just given the dynamics of the -- the growth dynamics, the household income, tax, labor, et cetera. And while there's some changes going on in terms of consolidation that's been announced, I think in the near term, we think it will continue to be competitive. We don't see anything that changes that. Then, I think we'll see more investment from other banking institutions in other parts of the country. You've seen a fair amount of branch building across the south from super regional competitors and that kind of thing.

So I think the competitive landscape is no less today. It's going to be an environment that is going to create plenty of opportunity. And so we feel very well positioned to capitalize on the opportunities in that footprint and think we can drive a lot of shareholder value with it.

How is that playing out in terms of pricing on deposits and loans? Are you seeing aggressive pricing? Or is it on terms and conditions? What is that coming through?

Yes, it's -- so there are pockets of aggressive pricing. Some of it is in very small institutions. Some of it is in people who are trying to build a foothold in the marketplace. I would say on the whole, deposit pricing competition is much like we ended the second quarter, and you won't see a lot of change in the third quarter. It's relatively stable at this point.

We're in an environment where the deposit base continues to contract. And we're seeing the competitive dynamics around as the Fed shrinks its balance sheet, continue to hold those deposit costs up. The Fed will do whatever it does this month. I think the market consensus is near unanimous that we'll see a rate cut and then things will be in motion again, but it's been pretty steady.

What would you say -- how is First Horizon differentiating itself from peers when it's going to market and speaking to potential clients?

Yes. We're -- our differentiating factor is and has been, is and probably always will be that we compete with a big bank balance sheet. And that means products and capabilities, the ability to meet needs across the broader financial spectrum. And at the same time, we do it with a community bank look and feel. So we really do believe as part of our DNA that our decision-making needs to be close to the customer.

We have leadership that is in the marketplace that knows customers, knows those customers well. We bring all of our lines of business together under that umbrella that does not mean they all report in that umbrella, but they all work together. And so in team meetings and management meetings, people are together. And that shows up as building broad, deep, long-term relationships that we try to bring all of the capabilities of the organization to meet customer needs and do it in a way that adds a win-win situation for our customer.

Great. You've been highlighting the $100 million-plus PPNR opportunity and a 15% plus ROTCE target over the next 2 or 3 years. What are some of the initiatives that are driving that opportunity and that outlook?

Yes. I'll start and then Hope, you can help me. I'll start by saying that when we talked about originally in the second quarter, the $100 million plus in opportunity, I probably didn't put enough emphasis on $100 million plus. I think it's $100 million, and I think there's some room for upside on that.

And this is a revenue-focused exercise. There's very, very little if any of it that is expense oriented. It is blocking and tackling and execution. And it's, I would say, the residual opportunity that exists because of bringing IBERIA and First Horizon together and our MOE having the interlude that we had. There's just opportunities to do a better job with revenue recognition in terms of discounting treasury products and services, cross-selling private client banking, taking loan-only products and bringing either a wealth management or treasury management or 401(k), whatever it happens to be.

And if you looked at this list of opportunities, it's lots of little things. And I don't mean to understate for anybody. Our people work really, really hard and it's going to take a lot of work. But over the next 2 to 3 years in thousands of little actions, we can see a path to creating $100 million plus, an additional profitability out of our existing business. And the work that we're doing to date gives us a sense that, that is actually taking place. We're seeing it in everything from doing a better job, the way we price yields on commercial real estate lending and our markets to doing a better job of collecting treasury fees and services for the work that we're providing.

In addition to everything Bryan said, one of the things that we've been doing and always have done, but we've really kind of increased in the last 2 years, we have our specialty verticals, and we've partnered those with a regional bank. And so if you're doing an in-market CRE deal now, one of our pro-CRE market lenders is there, our credit analysts and they're saying, and so you're meeting with 2 or 3 people that understand the CRE industry. You're meeting with a regional banker that understands your local market.

And we've seen in that particular example, in our CRE book, we've seen an expansion of what we're able to get at renewal, whether it's a better spread, deeper relationships. And so bringing the whole bank to them, not just the banker that say yes or no, we're going to renew this loan. It has really made a huge difference for us, and we're continuing to see those proof points over and over again as we're partnering with those bankers together.

We're going to have to figure out a way to talk about it because it's not $100 million incrementally perpetually. There's some starting point in there. So we've got to figure out the way to talk about it. But we are starting to see those gains. And they will ramp over time, but we think there's a really clear path to creating us a fair amount, not a significant amount of shareholder value.

Great. Let's, I guess, turn to the audience with a few response questions. I think we have 4 or 5 of them here. First, what's your current position in First Horizon shares? Number one, long; number two, equal weight; number three, underweight or short; or four, not involved? Quite a few owners in the room and quite a few potential owners in the room.

Yes. I'm number one.

All right. Our second question. Which would have the largest impact on improving the relative valuation of shares of First Horizon? One, better relative margin performance; two, above peer loan growth; three, better expense control; four, credit quality outperformance; five, more active share repurchase; or six, an accretive bank acquisition.

So loan growth driving the outlook. Any thoughts on that compared to how you're looking at things.

Well, in some sense, I say this a lot, the growth part of banking is often the easiest, doing it in a way that you're proud of your credit portfolio for the long term and you get paid for it is more difficult. That's a big part of our mix. And as we talk to our teams about our strategy, we talk a lot about growth. We put safety and soundness, profitability and growth in sort of [ triumvirative ] things that we think are very, very important.

And if you look at the dynamics in our balance sheet, you've got a few cyclical things going on, commercial real estate, for example, which has been very slow with the higher rates. You see those portfolios running down. C&I is actually growing very nicely. And mortgage warehouse tends to ebb and flow.

So we think that the makeup of our business does position us in this footprint to have very good loan growth opportunities. But we're focused also on the -- as we said a few minutes ago, the cross-sell and bringing the whole bank to the relationship, and it's not just about driving the credit piece, but we want to build long-term, deep relationships and not be transaction oriented. And I think the combination of all of those are going to give us a lot of levers. There's a lot in there about capital management as well, and we think we have the opportunity to continue to leverage the balance sheet both ways by growing loans and at the same time, repurchasing some stock.

We can definitely circle back on that. Number three, your third question, I guess, here we go. What will organic loan growth be at First Horizon next year in 2026? One, 3% to 5%; two, 5% to 7%; three, 7% to 9%; or four, greater than 9%.

So a little bit of a step-up from sort of where you are this year. It looks like most people are in the 5% to 7% range. We can circle back on that. And then number four, what will ROTCE be at First Horizon in 2027? It was 13.8% in the second quarter and 12.8% in the first quarter. So one, 12% or lower; two, 13%; three, 14%; or four, 15% or higher.

A lot in the 14%, 15% or higher. So it seems like the strategy is expected to work.

Well, I think it's hard to knowing what we don't know today what loan growth looks like, but I would guess somewhere in that mid-single digits area is not an unreasonable place to think about 2026 as you go into the year. I do think that our desire to bring those capital ratios down, and particularly, we've talked about going from 11% to 10.75% over time, and that's sort of being a wave marker on the way to 10.5%, and then this incremental profitability, we are going to drive higher returns. And it's probably too early to say we're very confident that we can hit this or that number in 2026, but we think the trend line is upward and we're positively encouraged by the direction things are headed.

Great. I think we have a final question for the audience. What do you think happens to the category for bank thresholds? One, nothing; two, the levels increase with inflation; three, it's moved to $250 billion; or four, an asset size test is removed.

45% moves to $250 million.

I almost wish you would ask that question with what should happen.

I guess maybe -- you commented on capital and regulation. We heard from Jonathan Gould yesterday. It definitely feels like the industry has a lot of tailwind with regulation. When you're talking about targeted capital ratios, are those longer term? Do you feel that the industry has reset to that higher level of CET1 for the longer term? Or how much could you see over the next 4 or 5 years, some of those target ratios coming down?

I actually think, over time, Jared, that those target ratios will start to trend down. I think that some of the overabundance of capital that has been built up in the industry is not particularly healthy for our customers and our communities. And you see some of that in the transition of risk out of the regulated financial industry and to other pockets of the economy, whether it's private credit or structured product or whatever it happens to be.

And I think there's a real regulatory benefit to keeping things as much as you can, at least within the regulatory purview. So I think there's a natural tendency to probably correct and maybe overcorrect following something like the great financial crisis, but I think that will sort of moderate over time. And we have said 10% to 10.5% is sort of where we think we need to be in this regime. It would not be surprising to me that we were running the organization with the makeup of our balance sheet at 9.5%. It's going to ebb and flow over time. But for now, it's moving relatively slowly as we get clarity on some of these questions about the tailoring of supervision, it will be easier to see. But as the stress capital buffer start getting reduced and adjusted and it starts working down from the top of the industry. I think you'll see that downward drift over time.

You had referenced -- we spoke a little bit about the longer-term loan growth and the opportunity for growth. Maybe as we bring the time frame in a little bit more to the second half of this year and going into next year, where do you see the trajectory of loan growth going? And how does the exposure to mortgage warehouse and specialty verticals sort of play into your growth outlook?

Jared, that's the question of the day. We have our treasurer here with me, and he flew up with Bryan yesterday and every other hour, I said what's happening with the 10-year treasury, what's happening with mortgage rates as the forward curve for this year keeps changing. He said this morning, it's about a 20% chance the market puts at a 50 basis point cut. Mortgages, the last 2 years, mortgage originations, new homes refi have really been at record lows. And so if we can see some pickup, the mortgage industry and our Head of Mortgage Warehouse will over head a mortgage that we can get that 30-year below 6, we really think we'll start getting back to normalize. And I think that will have a huge impact for us because it is such a large part of our balance sheet.

We've also picked up so much market share in mortgage warehouse the last couple of years, and we're putting the economic capital against it, but we're not seeing the fund-ups yet. And I think that is one of the places that we're really hoping that cutting rates will stimulate that part of the market, especially in the Southeast, which is a strong home buying location. We're continuing to see population growth. We're continuing to see the cost of housing go up. And there's still in a lot of our markets, bidding wars when houses are available because there's just not enough on the market. I know you have a similar issue here in New York and Connecticut. There's so little inventory in the good areas for school districts and families that there's just not enough supply right now.

And then on any of the other specialty lines, any bigger trends or opportunities to take market share?

I think CRE should pick up again. I think it's really been stalled the last 2 years. Part of it is the delay in the constructions in the Southeast. So many of the projects that were underwritten before COVID or during COVID just took so long to get done, whether it was supply chain issues, halt due to the shutdown in the economy. And so we're seeing a significant delay in some of that supply coming on, which is creating an absorption rate issue, which we'll work through, and we're continuing to see that to be positive from our credit perspective. But I do think we'll see CRE pick up from what we've seen in the last 18 months or so. It was really kind of stalled.

Bryan and I've talked about this. We came into the year with a much higher expectation of loan growth and tariffs really kind of put everyone in a 90-day or 20-day hold to see what does this look like, what is my cost of supply is going to be, and we're starting to see our pipelines pick up and our closings pick up in Q3.

You've got -- the CRE business is much more cyclical when you have these extremes and rates. And these loans, you originate a loan today, it funds up over the next 2 to 3 years, and then it pays off and it has this cliff effect. And we're at that part of the cycle where the loans that were done in '22, '23 are funding up and going to the permanent markets. And it's going to pick up. My sense is with rates coming down, people are much more interested in leaning in and projects are starting to make a lot more sense, particularly given some of the things that Hope talked about getting cleared up, tariffs, et cetera, construction costs.

Let's see if there's any questions in the audience, happy to open it up. Just wait one second. I think they're going to bring in microphone down to the front row.

Given that the category $400 million is still in place for now, and it's not that far off for you, how are you preparing for that? How much extra costs does that involve? How difficult is that? And just maybe an extra question. What else is happening? What do you expect on AOCI, for example, in terms of expected regulatory changes?

Yes. It's -- in terms of organic growth, we're at $82 billion, as Jared noted in the beginning. We've got a couple of years minimum before we would cross that threshold, and then you have a period of time to adapt to it. We're not sitting around waiting for the threshold. And we have -- we've gone at it a number of different ways, and you can make all sorts of assumptions. If you have just category 4 regulation as it stands today, you're probably talking something $25 million to $50 million of added incremental annual expense. If TLAC is added to that requirement, you're probably talking about somewhere between $125 million and $150 million of incremental expense. I tend to think that the last part of that TLAC is less likely. Given the $25 million to $50 million, we have gone through and we have a pretty good punch list, we think, in terms of our gaps to preparedness. And we've been building out the various elements we complete and publicly disclose a stress test today even. So some of the run rate costs are built in.

Given this punch list, we've sort of divided it into -- it's going to sound more binary than I intend, but there's a list of things that we think are really good tools that will make us a better managed organization between here and $100 billion wherever that threshold ends up. And then there are those that we can put in the bucket of when we hit that threshold, we will complete them. So some of that $25 million to $50 million is already in. We'll build more of it. So my expectation is, as an investor, it will not be a cliff in expenses when we hit $100 billion, and that will be -- if not completely, we will be largely prepared to cross that threshold without a whole lot of interruption in the way we're doing business.

On AOCI, it's -- we're sort of indifferent to that today. It's -- we look at our capital with and without, and we compare it across the industry. We do not have a large securities portfolio, have a very small held-to-maturity portfolio. And it does not have a significant adverse impact on us one way or the other. We'll adapt to the rules, whatever they are in real basic terms, marking part of a balance sheet and not part -- another part of it, it makes no sense to me. But we'll comply with whatever it is.

Any other questions in the audience? I guess, Hope, maybe you can walk us through some of the margin dynamics as we move through the year if we get the expected rate cuts. And how should we think about the sort of starting point for next year?

I'll start with what you think the expected rate cuts are at 12.30 today. We have talked about this consistently over the last year. We've stopped giving NII guidance differently than fee income because we trade one for the other right now. So a decreasing rate environment, hopefully, will stimulate mortgage warehouse. It will stimulate mortgage originations. So it's not going to be a static balance sheet for us. And FHN Financial has had a much lower year than we anticipated coming into the year because there's been no rate cuts.

So in the near term, I actually see rate cuts is stimulating for us. I think it will get our countercyclicals moving, and we have proven through the last, I guess, 4 quarters, 5 quarters now of rate cuts that we're able to make up the beta that we lose on the asset-sensitive loan repricing on the deposit side. We are one of the best, if not the best, in cutting betas through this cycle. We've seen the deposits to be very sticky. Consumers are not as sensitive to a 25 basis point cut. We have 2 proposals that are ready to go. We see a 25 or 50 basis point cut with the Fed this month. We are already proactively discussing with our bankers what that will mean for walking back our existing clients as well as rate offers. And we've already walked back our rate offers and expectations.

So we generally are seeing flat deposit costs quarter-over-quarter and expect that we'll continue that beta forward with any rate cut that comes. That won't be perfectly symmetrical in the quarter. It will take a little bit to work through. But if you look at what we did last year, we had margin compression in Q4 and then expansion in Q1 and Q2 as the deposit beta down lagged the loan repricing.

I'll reemphasize the point Hope made very well, which is when you think about our business, we report our asset sensitivity like everybody else, but you really shouldn't think about our business in terms of asset sensitivity separately from what happens in our fee businesses and our countercyclical businesses. And we -- Tyler does a fantastic job putting sort of the balance in that in our quarterly review. So you can see things ebb and flow. And you take just the last couple of weeks here where the market became convinced that the Fed is going to cut. We saw immediately a pickup in the activity at FHN Financial.

So that balance is there, and we're going to be -- over time, we will be much more neutral to -- we're not isolated from 500 basis point moves like we've gotten in the past, but we're going to be much more neutral than it would look if you just looked at our asset sensitivity alone. And it's -- we run it from an asset-sensitive perspective. It's about 2-point -- it's less than 3%, 2.8%, 2.9% for 100 basis points. And that's a static move. It works in steps. And so we're going to be much more neutral than as you look at our balance sheet.

On the FHN Financial side, as you referenced, it was a little bit of a slower start to the year. What is going to drive that increased volume? Is it just actually seeing the rates move as expected, and you feel that there's a lot of pent-up demand? And as we start looking at sort of ADRs for the rest of the year, is that the expectation that, that's going to be a sustainable improvement?

A steepening curve has been good for them this year, which is where we've seen a pickup, but with static rates, no rate cuts in a year. They're just missing that second component. Also the high volatility we saw in March, April, May and June in the market was not good for their business. We've seen a stronger Q3 as we had anticipated, and a rate cut will be very stimulating for them. And if we see a series of rate cuts like we saw in Q4 of last year, we do expect that business to pick up.

End of year also tends to be a better time for that business. A lot of people will reposition their balance sheet getting into the new year, so December tends to be a good month. But we've been -- as Bryan said, we've seen a positive movement in that business in the last couple of weeks and expect that will continue with an expected rate cut this month. Question is whether it's 25 or 50 at this point. I don't think anyone's pricing in no rate cuts.

Yes. Maybe shifting to expenses. How are you looking at the path of investments from here, the path of expenses? And any initiatives or opportunities out there to either invest in the franchise or see some cuts?

We're in the second week of September. But as we sit here today, we think that most of the significant investment that we needed to make following the termination of the merger has largely been made and is largely completed at this point that we have a number of levers that we continue to work on to control our expenses. And so as we sit here, we feel there's a really good chance that we're going to be flattish next year in 2026. We've got to accumulate a lot of budget work between now and then, but our goal going in is that we hold expenses essentially flat as we go into '26.

One caveat to that, we'll be excluding commissions for FHN Financial. If they double their ADR, do remember they have a 60% attribution rate there for expenses and still positive PPNR and I'll take it all day, but we're not going to cut back office to fund commissions that's positive PPNR. And we're hoping that we see a much better year in FHN Financial than we've seen in the last 3 years there.

That's why I can say as a former CFO, she's the best CFO the company has ever had.

Maybe shifting to credit. Credit has been strong. Are you seeing any areas of concern, more recent developments or any areas of concern? And how should we think about the allowance and the provision build or movement from here?

Yes. Hope, I'll start. We feel -- we're still very constructive on credit. And we pay attention to what's happening in the portfolio at a very granular level. And certain sectors of the multifamily economy have been slower. One, because you've had slower absorption rates, but they're in good places. High-growth communities that are going to see very good absorption. They got delayed because of construction and materials and so on and so forth. That seems to be playing out very, very well. We've had some plus or minus $500 million of payoffs in those portfolios this year.

So we're very constructive. Office, whether it's bottomed or not, it feels like it has stabilized at this point. And we do very little over a 10-storey building. A lot of what we do is medical office. So that portfolio has been stable. So we're very constructive on credit cost. We think that the economy as it continues to stabilize and to pick up, interest rate clarity becomes more clear. We think that NPAs, charge-offs have more of a downward bias as we go into '26 than not loan loss reserves. We've built what we think are very healthy loan loss reserves. And I would expect over time that those will attrib back into income just simply because the macro economy is significantly stronger.

I agree with Bryan. I think I had said this at the end of last year, I thought we were at the end of building provision, and we would start coming back down. And unfortunately, the March tariff kind of changed the economic outlook that we use for Moody's for our CECL and we had to build. We did release again last quarter, fully hope that we are at the end of the cycle, and we'll start normalizing credit. It's one of our key levers to get to 15% ROTCE.

On Q1, I think it was -- Tyler will help remind me, Q4 or Q1, but we had negative loan growth, yet we had to build provision with lower charge-offs in the prior quarter. And it wasn't because our credit got any worse. It was because the Moody's model said the economy was going to get worse. And as a CFO, it's really hard to look at our charge-offs, a decreasing balance sheet and say I still had a big build provision. And so I do think that's going to come back in. I hope that we're at the start of it and get through it pretty quickly.

If you look at our charge-offs vis-a-vis most broadly defined peer groups, we're going to be better than average in charge-offs. We're going to have higher than average loan loss reserves. And those 2 together say we're positioned in a fair -- at least in my view, say we're in a fairly conservative position and that there's -- we can handle some bumps in the road between now and whatever Nirvana is in the economy. I also never hesitate to acknowledge. We're always 1 day closer to the next recession. So we just think managing the balance sheet from a conservative perspective is the way to do it.

There's been an uptick in deal activity in your markets, some large deals, some smaller deals, some bigger participants coming into the market. Does that create an opportunity for you to step in and either take some share or hire some good people? Or how are you looking at the specifics of some of these deals changing the landscape?

Yes, I think invariably, it will create opportunity for us. And most particularly, the merger that was announced this summer are 2 big in footprint players that we compete against on quite a number of deals. And having been through mergers and all that happens in them, it'd be hard to say that we don't think some opportunity will come out of that. I think both organizations have been and will continue to be a strong competitor, but we will look for opportunities, whether it's the existing market as it stands today and emerging competitors, we're going to look for opportunities to grow our customer base and go back to what I said earlier, which is deliver that community banking look and feel with a big bank product set and decision apparatus.

What about -- we spoke about the improving regulatory backdrop, the additional, I guess, maybe some flexibility with alternatives there and your capital. What's your appetite for looking at potential deals in that as in the quarter?

Yes. I think to say that most simply, M&A is not a priority for us today. We believe we have the capacity to announce a merger, integrate it. We have the capital base. We have the technology in place. But going back to where we started at the top of this discussion, if we believe strongly in the things that we can accomplish with the $100 million plus incremental profitability, keep our eye on the ball, focus on that, deliver on that and then use that as a platform for having the business model that you can transition to something else if you ever get into inorganic growth. I don't believe that in our footprint that given our capital generation, given the opportunities for organic growth where we have a number of relatively small footholds in some very dynamic markets that we can't generate the growth that we need as an organization by growing with our footprint.

So it goes into a category of never say never, but inorganic growth, M&A makes very little sense. If you push me really, really hard and you said you had to do something, I'd say, all right, give me a good branch network and a good deposit base in some market and make it small, keep us under $100 billion, and then that might make sense. But that doesn't feel like a priority given all that we think we can do with the existing company and footprint we have today.

Great. Well, thank you. And do you have any closing thoughts?

No. Other than we're really excited about the opportunity that we have. The franchise is in a premier footprint. We have a great team of bankers, a lot of enthusiasm. We've spent the last 2 years really positioning ourselves for acceleration, both by investing in our systems, our technology, our processes and our products. We have tremendous opportunities to improve profitability. And we have an energized team. We spent the last year talking to our people an awful lot about our strategy, our go-to-market strategy, and there's a lot of enthusiasm across the organization. So we sit here today very optimistic about the opportunity to create value over the next 2 to 3 years and drive the returns that we've talked about.

Great. Well, thank you very much. Thanks for joining us. It was great speaking with you both. And hope you have a great rest of the day.

Great. Thanks for having us.

Thanks.

Thank you all for joining. I would like to welcome you all to the First Horizon Second Quarter 2025 Earnings Conference Call. My name is Brica, and I will be your moderator for today. [Operator Instructions]

I would now like to pass the conference over to your host, Tyler Craft, Head of Investor Relations at First Horizon Bank. Thank you. You may proceed.

Thank you, Brica. Good morning. Welcome to our second 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 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. These are non-GAAP measures, so it's important that you 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 them.

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

Thank you, Tyler. Good morning, everyone, and thank you for joining our call. We appreciate your continued interest in First Horizon. I'm pleased with our results in the second quarter. Our balance sheet growth, credit and profitability were all strong in the quarter. The economy continues to be relatively stable. We are seeing improving customer confidence but uncertainty remains around tariffs, interest rates and the economic outlook. Sitting here today, we believe that the fundamentals in the economy, especially in our southern footprint will remain good for the back half of 2025 and into 2026.

Our focus remains on safety and soundness, profitability and sustainable growth. We are pleased to report that our credit trends remain consistently strong. We continue to deliver on our profitability targets with expense and pricing discipline despite increased deposit pressure and competition. And finally, balance sheet growth this quarter is in line with the broader industry trends.

On Slide 5, we share a few highlights from the quarter. We earned an adjusted EPS of $0.45 per share, which was a $0.03 increase from the prior quarter. These results reflect pre-provision net revenue growth of $4 million from the first quarter and improving credit conditions. The primary driver of our PPNR improvement was a $10 million of incremental net interest income, which came mostly from our growth -- from growth in our loan portfolio. We also maintained expense discipline with total expenses, excluding deferred compensation increasing by only $4 million from the last quarter.

Our credit portfolio remains strong. Our charge-off ratio of 22 basis points remained in line with our expectations coming into the year. We saw a 3 basis point decline to our coverage for credit losses, reflecting the loan balance mix improvements for mortgage warehouse lending growth as well as the reduction in classified loans. This quarter was a solid quarter for our balance sheet with period-end balances for both loans and deposits finishing 2% higher quarter-over-quarter.

We are optimistic about our momentum going into the second half of this year. With that high-level overview, I'll turn it over to Hope to run through our financial results in more detail. Hope?

Thank you, Bryan. Good morning, everyone. On Slide 6, you can see our adjusted highlights for the quarter, driving our $0.45 of EPS.

On Slide 7, we highlight 2 notable items totaling $4 million of pretax impact in the quarter. The largest impact was an accrual release in deferred compensation related to a business unit divested more than a decade ago.

On Slide 8, we cover our $10 million of net interest income growth and the 2 basis point compression of net interest margin. NII growth benefited from the seasonal loan growth, particularly our high-yielding mortgage warehouse business, which contributed to a 3 basis point expansion of total loan meals. Our margin compression to 3.40 was mostly driven by a 4 basis point increase to interest-bearing deposit costs as we saw a slight increase to our rate paid on client deposits, and broker deposits grew to support loan growth, which was concentrated in mortgage warehouse.

On Slide 9, we provide more information about our deposit performance in the quarter. Period-end balances increased by $1.4 billion compared to prior quarter, driven by a $1.6 billion increase in brokered CDs which primarily supported our loans to mortgage companies and offset broader industry trends and reduced deposit supply as deposit flows to other categories like brokerage accounts. We did see growth within noninterest-bearing deposits as period end balances were up $57 million. This growth includes the success of our seasonal marketing promotions, which started in the second quarter.

Retention continues to be a highlight for our deposit story as we retain approximately 95% of the $23 billion imbalances associated with clients who had a repricing event in the quarter, while continuing to reduce our costs on those deposits, even in a flat rate environment. For deposit pricing overall, the average rate paid on interest-bearing deposits increased to 2.76%, up from the first quarter average of 2.72%.

Our strong pricing discipline through this interest rate cycle has achieved a 72% interest-bearing deposit beta since the Fed rate cuts began in the third quarter of 2024. Absent additional Fed cuts, deposit pricing will move around slightly quarter-to-quarter, reflecting reductions in deposit supply, evolution of competition and balance sheet funding needs.

On Slide 10, we cover our loan portfolio performance. Period-end loans were up 2% from the prior quarter driven by increases in loans to mortgage companies of $689 million. This performance reflects both seasonal trends and the benefit of market share gains that we have achieved in recent quarters. We also saw growth in our C&I portfolio with period-end balances of $316 million quarter-over-quarter.

Our CRE balances continued to decline as payoff of stabilized projects continued, including a reduction of nonperforming CRE loans this quarter. As I mentioned on the margin slide, total loan yields expanded 3 basis points from the first quarter due to the incremental balances within loans to mortgage companies, one of our highest-yielding portfolios.

On Slide 11, we detail our fee income performance for the quarter, which decreased $3 million from the prior quarter, excluding deferred compensation. Fixed income performance decreased slightly with ADR declining by 6% amidst a less favorable environment. Additionally, non-ADR performed at normal levels after a slightly elevated first quarter. The current rate environment with a flat short to middle part of the rate curve creates a near-term headwind for this business.

For mortgage banking, as well as service charges, we saw a decent pickup from a seasonally slow first quarter as spring and summer months tend to see higher client activities in those areas, combining to bring in an additional $4 million of fee income.

On Slide 12, we highlight that excluding deferred compensation, adjusted expenses increased just $4 million from prior quarter. Personnel, excluding deferred comp, decreased by $3 million from last quarter, driven by an $8 million reduction within incentives and commissions on seasonality and retention awards being paid out. This was partially offset by a $5 million increase to salaries and benefits based on higher day count, benefit seasonality and continual investment in our associates. Outside services increased by $7 million, with the largest driver being advertising investments related to seasonal pickups and marketing activity.

Turning to credit on Slide 13. Net charge-offs increased slightly by $5 million to $34 million. Our net charge-off ratio of 22 basis points of average loans remains in line with our expectations for the year. Loan loss provision was $30 million this quarter, with our ACL to loan ratio declining slightly to 1.42%, primarily due to our growth in loans to mortgage companies, which is a portfolio that carries very little loss coverage as well as reductions in classified loans. This reduction in NPLs represents a 4 basis point decline from last quarter and was partially driven by nonperforming CRE payoffs. We remain extremely proud of our credit culture, years of disciplined underwriting provides stability for our performance across economic cycles.

On Slide 14, you can see that we maintain capital levels in line with our near-term target of 11% CET1. As we have mentioned before, our priority for capital deployment is organic loan growth, which we saw this quarter. We retained just over half of our $1 billion share repurchase authorization after using another $9 million in the second quarter, which provides flexibility in achieving our CET1 target over time. Our near-term target for capital remains unchanged at this point and we will continue to have conversations with our Board to determine the right time to adjust capital levels to achieve our long-term goals.

On Slide 15, a we take another look at our full year 2025 guidance. Our goal for revenue and expense remains achieving PPNR growth, and we fully expect to hit this target. Our range for total revenue remains unchanged, and our performance is in range so far this year. Achieving the upper end of the range, we need to see continued NII momentum as well as significant pickup in our countercyclical businesses. Following another quarter of successful expense management and lower commissions in countercyclical businesses, we have made an adjustment to lower our expense range to flat to up 2%. Our outlook for charge-offs, taxes and capital remain unchanged as our performance to date and rest of the year expectations fall within these ranges.

I'll wrap up with Slide 16. Over the next 2 to 3 years, our target is still to reach and maintain a 15% plus ROTCE. An important key to achieving these levels of profitability is the ability to operate efficiently and profitably. As we recently announced we see opportunities to grow our PPNR by $100 million or more over the coming years within our existing businesses through execution on identified synergies and deepening our client relationships. We still believe that long-term capital management and a prudent credit culture are important drivers to maximizing our profitability, and we expect to capitalize on our years of focused performance to deliver these returns.

Now I will give it back to Bryan.

Thank you, Hope. As we close out another quarter, I'm incredibly proud of the focus, dedication and resilience to our associates to continue to show I'm extremely proud of the strong foundation that we have in place. We continue to make significant progress in enhancing our organization, streamlining our go-to-market strategies, deepening collaboration between teams and ensuring we are best positioned to capitalize on our opportunities.

Over the last few quarters, we have further aligned the organization around common go-to-market strategies and clarity around our value-add to clients and how we deliver that value across all conditions. The results of this focus will help us drive towards the 15% plus ROTCE that we expect to see in the next 2 to 3 years.

As Hope highlighted, in addition to normalized capital and provision levels, we see over $100 million in pre-provision net revenue opportunity in our existing book of business through consistent execution of our business model. With this disciplined execution, our balanced business model and unwavering focus on client needs, I am confident to first arise in an exceptionally well positioned to capture the opportunities before us.

Thank you to our associates for their hard work and to our clients for their continued trust in First Horizon.

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

[Operator Instructions] Your first question on the line comes from Michael Rose with Raymond James.

Just wanted to get, Bryan, just some background and color as to where clients stand at this point. I think we're seeing a little bit better loan growth. It was good to see the decent C&I growth this quarter. CRE was down a little bit, but I think we're hearing more and more banks talk about CRE opportunities and especially on the construction side as well. Can you just give us a sense -- I know utilization was flat, but just where the health of the borrower is and if you are starting to see increased activity? I know you have -- you talked about kind of low single-digit loan growth next year. So any updates to that as well would be great.

Yes. Sure, Michael. Thank you. The borrower is remarkably resilient, and customers are in a very positive place right now. If you were sitting here 90 days ago, we would have a more significant evaluation. But it's interesting, borrowers have been very resilient. They process through some of the early impacts of tariffs and how that's going to affect business or laying in more and more to opportunities. It's not as all things, there's different places on the spectrum that people are, but we see increasing optimism and we're likely to see, in our view, improved activity over the back half of this year as some of these tariff questions get further settled over the next 30, 60, 90 days. And we think borrowers are generally excited about the opportunities in front of them, and we'll continue to invest.

Great. And maybe just as one follow-up. I think we've seen a lot of progress on the deregulatory front. You guys still have the CET1 target of 10.5% to 11%. Is there any chance that, that could be kind of moved down and then just crossing that with the fact that the stock has done pretty well here recently, the earn back on the buyback is getting a little longer. Just wanted to gauge your appetite for buybacks as we move forward.

Yes. We've -- this is a process that we go through and we work through it with our Board, we complete annual stress testing. I would say that the results of the CCAR process with the largest institutions was generally favorable and you saw, I think, a more positive regulatory outcome in that regard. And I expect that over time, we will be able to move those capital levels lower. We will continue to evaluate economic conditions. We'll continue to discuss it with the board, and we'll continue to juxtapose it against what we expect in terms of growth in the balance sheet.

That said, in the absence of organic opportunities for us to invest, i.e., loan growth, we certainly are comfortable repurchasing our common stock. We do believe that we will create significant value over the next several years. And even at these higher levels, we think that there is value in our repurchase program. and that as we drive towards this 15-plus percent ROTCE, that, that value will move up. So -- we think we have lots of levers. We think we start with a very strong capital position, and we think it gives us tremendous flexibility as we look at the back half of 2025 and into 2026.

Your next question comes from Chris McGratty with KBW.

This is Andrew on for Chris McGratty. I know you've had strong deposit pricing so far this cycle. And I know the core ticked up slightly on the brokered to fund mortgage warehouse. But do you see any incremental deposit pricing opportunities going forward?

Chris, I do see deposit repricing opportunities going forward, but I think that they could possibly be up or down. The forward curve is a big impact to how deposit competition is heating up. As we see that first cut move out, people are willing to guarantee rate and term. As I mentioned on our first quarter call, we weren't seeing much competition. We weren't seeing guarantees that were out there past 30 or 45 days. We're now competing in an environment where we're seeing competition that's guaranteeing rates at just slightly below the current Fed fund raise and guaranteeing them for 6 to 9 months. And although we're going to continue to keep walking back our current clients when we bring new to bank clients and with that promo, we have had to slightly uptick our current client promotion in order to achieve that 95% retention we want on client money. And so -- as I've said multiple times, I think that this deposit repricing cycle will be a little bit more of a zigzag than a typical hockey stick where as you saw last quarter, we were able to significantly bring it down this quarter, we gave away a couple of basis points. I think as we see that cut come into expectation, we do see one come in, in September, we'll be able to continue to walk that back and the pace of cuts will make a difference for how quickly we can walk back deposit pricing.

Andrew, I'll add to that. We clearly saw a pickup in deposit competition across the second quarter. And that really fits with what is a contracting Fed balance sheet, which contracts supply money. It fits with our longer-term view that with the ease of transferring money with digital tools, for example, across multiple platforms, the deposit costs are going to have a slow migration up over time. That said, we work really hard in our markets with a lot of day-to-day interaction with customers to create win-win situations where we price deposits attractively for our customer and build strong long-term relationships. And at the same time, do it in a way that creates profitable long-term value for our First Horizon shareholders.

I think as you look at the next several quarters, I would not sit around and say there ought to be a wholesale objective to raise or lower deposit costs. I think it's about creating value for our customers and our shareholders by building those long-term relationships, recognizing that we're not playing solitaire in the marketplace. And that there are a lot of forces in play and a lot of people opening de novo branches and advertising exceptionally high rates and things of that nature. And I think our bankers have done a very nice job over the last 90 days, the last 2 years to be more expansive and managing through a changing deposit environment, and we'll continue to deal with it in a very proactive way.

Great. That was really helpful. And then just one more for me. Credit remained strong and within your guided range, but can you speak to any verticals or geographies that you're seeing signs of stress in or more concerned about right now?