FIRST HORIZON Q1 FY26 earnings call FHN

First Horizon demonstrated strong profitability in Q1 FY26 with a return on average assets of 1.30%, up 19 basis points year-over-year. Net interest income grew 6% year-over-year, outpacing the 3% growth in the loan portfolio, reflecting successful efforts to improve balance sheet profitability. Adjusted pre-provision net revenue also saw an 8% improvement compared to the prior year, contributing to the third consecutive quarter of 15%+ adjusted ROTCE.

The company reported a slight increase in period-end loans by $221 million quarter-over-quarter. Core C&I business showed impressive strength with $624 million in loan balance growth, building on momentum from H2 2025. While commercial real estate (CRE) remains a headwind due to stabilized loans moving to permanent markets, CRE pipelines are described as strong, presenting opportunities to stabilize balances. Loans to mortgage companies experienced typical seasonal decline of $62 million, but are expected to see a seasonal increase in Q2.

Period-end deposit balances decreased by $1 billion quarter-over-quarter, primarily driven by reductions in brokered deposits. The average rate paid on interest-bearing deposits decreased to 2.28% from 2.53% in Q4 FY25, with a cumulative deposit beta of 69% since September 2024. The interest-bearing spot rate ended the quarter at 2.27%. Management anticipates a slight uptick in deposit costs in Q2 and Q3 if no rate cuts occur, partly due to increased marketing for new-to-bank acquisitions.

Fee income decreased $12 million quarter-over-quarter (excluding deferred compensation), though it was up $13 million year-over-year. The decline was attributed to day count impact, normal seasonality in service charges (treasury management, interchange, NSF), and fluctuations in equipment finance. Fixed income revenues saw a slight QoQ decline due to decreased average daily revenue (ADR) to $742,000, impacted by increased market volatility^🌐. Adjusted expenses, excluding deferred compensation, decreased $32 million QoQ, driven by lower incentives and reduced outside services related to technology initiatives and marketing.

First Horizon ended the quarter with a CET1 ratio of 10.53%, influenced by buyback activity and loan growth. The company bought back approximately $230 million of common shares during the quarter, with $765 million remaining in its current authorization. The successful issuance of $400 million of Series H preferred stock increased the Tier 1 capital ratio by 44 basis points to 11.95%. Tangible book value per share grew 9% year-over-year to $14.34, supported by buybacks and dividend increases.

The company is actively pursuing a previously identified $100 million plus PPNR opportunity, which is entirely revenue-driven, focusing on deepening client relationships and enhancing profitability. Examples include improved CRE pricing through a specialty-market partnership model, leveraging tools for granular relationship insights, and optimizing spreads on credit and treasury services. This initiative is a continuous effort to build long-term client partnerships and is already showing initial progress.