First Horizon (FHN) Q1 FY26 earnings call: guidance and Q&A

Asked about optimism in the lending environment, specifically C&I and CRE pipelines, and any impact from macro uncertainty.

Management expressed optimism, noting C&I pipelines remain very good with business owners looking to grow. CRE pipelines are also strong, not seen since 2021-2022. Macro uncertainty from the Middle East has not significantly impacted C&I pipelines yet. The focus is on profitable, relationship-oriented growth.

“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.”

asked by Jon Arfstrom · answered by D. Jordan

Inquired about deposit competition, the interest-bearing spot rate, and the optimal environment for deposit pricing.

Management noted that deposit competition is increasing, with competitors offering longer guarantees and higher rates. The spot rate is still below the average, and deposit costs are expected to slightly trend up in Q2 and Q3 if no rate cuts occur. Q2 typically sees more new-to-bank acquisitions and associated promotions.

“I do think that deposit costs will slightly trend up in Q2 and Q3 if we don't see a rate cut.”

asked by Michael Rose · answered by Hope Dmuchowski

Asked about credit trends, specifically for criticized and classified assets, and private credit exposure.

Chief Credit Officer expressed satisfaction with consistent credit performance, highlighted by 18 bps NCOs. He is watching consumer discretionary spending sectors (trucking, auto, restaurants) due to energy prices. Private credit exposure is minimal (<1% of loan book), primarily backed by tangible assets, with very little enterprise value lending.

“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.”

asked by Michael Rose · answered by Thomas Hung

Questioned the assumptions behind the $100 million+ PPNR opportunity, particularly regarding cost savings or slower hiring due to AI.

Management clarified that the $100 million+ PPNR opportunity is entirely revenue-driven, focusing on deepening relationships, with no expense savings built in. AI is contributing to a flat expense outlook by enabling scaling of revenue without scaling the back office, rather than direct cost saves.

“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.”

asked by Jared Shaw · answered by Hope Dmuchowski

Asked what would cause the company to lower its 10.5% CET1 target and feel comfortable with a lower ratio.

Management stated comfort with the 10.5% target for now, given near-term macro uncertainty. They have a bias to operate at a lower CET1 ratio over time and will continue to evaluate it as uncertainty settles. They are not uncomfortable with temporary dips in CET1 due to mortgage warehouse lending, which has low credit losses.

“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.”

asked by Jared Shaw · answered by D. Jordan

Asked about the NII outlook, loan yields, bond yields, and how these factors affect NIM stability given anticipated deposit pressure.

Management expects slight deposit cost increases to be manageable. Fixed rate asset repricing (approx. $1B investment securities, >$5B fixed rate loans in FY26) will provide some offset. They have levers to navigate deposit trends and feel good about balance sheet stability, expecting near-term NIM in the high 3.4s.

“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.”

asked by Casey Haire · answered by D. Jordan

Inquired how agnostic the expense base is to the wide range of the revenue guide and the baseline for flat year-on-year expenses.

The expense base is largely agnostic to the revenue guide, except for countercyclical businesses where commissions are 60% of revenue. The flat expense guidance assumes flat countercyclical revenue. Investments in new hires, branches, and a new hub are already built into the flat expense outlook, demonstrating the ability to scale without adding support infrastructure.

“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.”

asked by Timur Braziler · answered by Hope Dmuchowski

Asked if the company has quantified the estimated impacts or benefits from the recent Basel III Endgame proposals.

Management confirmed they have calculated the impacts and believe the proposals will be net positive for the company, especially for mortgage and fixed income businesses. However, they have not provided a precise quantification due to uncertainties in the model and how changes in loan terms might affect capital treatment.

“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.”

asked by Anthony Elian · answered by Hope Dmuchowski