First Horizon (FHN) Q2 FY26 earnings call: guidance and Q&A

What is the outlook for deposit costs and funding costs for the rest of the year?

Deposit costs are expected to continue increasing, similar to last year's trends, especially in Q2 and Q3 due to competitive offers. The trajectory depends on future rate movements, but the cumulative deposit beta is expected to shrink slightly.

“I do think that our beta will continue to shrink slightly. But I want to make the point in that we said at the end of last year, both Q3 and Q4, we were maximizing the decrease in our deposit cost, knowing that we give some back once rates stop cutting.”

asked by Jon Arfstrom · answered by Hope Dmuchowski

Is loan competition rational, and are there any areas more competitive than others regarding yields?

The loan market is surprisingly optimistic with strong pipelines, despite economic uncertainties. Competition is very high, particularly for larger transactions, which is expected to put some pressure on relative spreads on both sides of the balance sheet as the economy churns forward.

“London pricing and structure, I can always give you anecdotes where it seems irrational. It is very competitive, and it's very competitive for larger transactions in particular.”

asked by Jon Arfstrom · answered by D. Jordan

Given the current rate environment and volatility, what are the puts and takes for the ADR business?

The ADR business is highly volatile due to rate movements and geopolitical uncertainty. While some weeks are strong, the back half of the year is not expected to be as strong as last year. Rate increases could make it more opportunistic for investors, potentially boosting ADRs.

“On the whole, it feels like the back half of this year is not going to be as strong as the back half of last year. But I just don't know how rates are going to move given the uncertainty around what's happening in the Middle East in oil and what's happening with the Fed and rate cuts and inflation.”

asked by Michael Rose · answered by D. Jordan

How low can the securities portfolio go as a percentage of assets, and are there any changes in current purchase strategies?

The securities portfolio is currently about 11% of total assets. The goal is to run it as small as possible, maintaining a floor for liquidity, asset-liability balancing, and collateral. The company is reinvesting $1.2 billion rolling off at ~2.8% into new securities yielding over 4%.

“In the securities portfolio today, Jared is about 11% of total assets or thereabouts we try to run that portfolio as small as we can because we don't believe that we create any economic value for our shareholders or for our customers for that matter there.”

asked by Jared David Shaw · answered by D. Jordan

How will the anticipated 10% RWA reduction from Basel III impact capital allocation, particularly buybacks, beyond organic growth?

Capital allocation prioritizes loan growth, followed by dividends and share buybacks. The 10% RWA reduction provides flexibility, but the timing of Basel III implementation and the economic environment are uncertain. The company aims for high single-digit to 10% loan growth, which would absorb some of the excess capital.

“It's hard for me to know when it will all go into place, Ebrahim, and what the economic environment could be. We came into this year expecting load of mid-single-digit loan growth. I do see an environment where we can get back into the high single digits and 10% loan growth as an economy, especially in the Southeast quickly as our markets are growing.”

asked by Ebrahim Poonawala · answered by Hope Dmuchowski

How is management thinking about NIM for Q3, given the earlier comments on rising deposit costs?

NIM is expected to settle in the mid-to-high 3.40s for the full year. While deposit costs are rising, NIM compression is linked to loan growth, which is positive for Net Interest Income (NII). The focus is on driving NII dollars, not just the NIM ratio.

“I think NIM, we expect it to settle in this year in the mid-3, 4s to high 3, 4s. That will vary -- basis point or 2 on NIM for us is really about mix just deposit costs, mortgage warehouses, our highest spread business. So as that funds up, you can see some margin compression there, but it's positive to NII.”

asked by Anthony Elian · answered by Hope Dmuchowski

What would the margin trajectory look like with a 25 basis point rate hike?

A rate hike would cause loan yields to reprice up first, with deposit costs lagging, leading to some margin expansion in the initial quarter. Over a 12-month period, it's expected to be matched. The asset-sensitive balance sheet would benefit, and given current low ADR levels, a rate increase would be incrementally more positive.

“Just like the -- it's going to be the opposite of what we saw with decreases, which is the loan side reprices up first and the deposit price will lag. What we've seen in decreasing environment as the loan yield comes down first and then the deposit lag. So you'll have some margin expansion in that first quarter and then you'll see it compress back as the deposits reprice.”

asked by Timur Braziler · answered by Hope Dmuchowski

Is the company roughly 15-20% of the way to the $100 million PPNR opportunity, and when is it expected to be fully realized?

The company is not signaling a specific percentage of completion. It's an ongoing 2-3 year exercise, with progress being made and embedded in the 2026 expectations. The focus is on continuous improvement, and management expects to pursue opportunities beyond the initial $100 million target.

“As I said at the time, a year ago, it's probably a 2 to 3 exercise, 2- to 3-year exercise. And I think we're in progress on that. But to your specific question, that's not intended to signal that we're at any percentage point of completion at this point that we're continuing to work on it.”

asked by Christopher McGratty · answered by D. Jordan