管理層發言
Welcome to the First Horizon Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. To withdraw your question, press star 1 again. I will now hand the conference over to Tyler Craft, Head of Investor Relations.
Thank you, Rebecca. Good morning. Welcome to our second quarter 2026 results conference call. Thank you for joining us. Today, our Chairman, President and CEO, Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. 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 is 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; you should understand that we are not obligated to update them. With that, I will hand it over to Bryan.
Thanks, Tyler. Good morning, and thank you for joining us this morning. I am proud of the results we achieved in the second quarter. Comparing our year-over-year performance, adjusted earnings per share for the quarter were up $0.09, or 20%. We saw an 8% increase in adjusted PPNR, and period-end loan balances grew by approximately $2 billion compared to the second quarter of 2025. These outcomes are the direct results of our clear objectives, disciplined execution, and the value we demonstrate to clients day in and day out. We see continued growth momentum going into the second half of the year. Our entire organization is focused on delivering strong performance through the cycle through our core regional and specialty businesses and our countercyclical business model. Building long-term relationships with clients to benefit most from the value we provide remains at the center of our strategy. We continue to grow and invest in the people, products, and services that meet client needs and drive continued performance. Hope will provide some additional comments on the second quarter, and I will return at the end of the call for some closing comments.
Thank you, Bryan. Good morning, everyone, and thank you for joining us today. Starting on slide 6, we highlight our strong earnings momentum as shown by our results for both the second quarter and the first half of 2026. In the quarter, we grew adjusted EPS by $0.01 to $0.54, adjusted PPNR by 1% to $364 million, and average loan balances by $1.5 billion. Compared to the first half of 2025, our adjusted ROTCE increased by over 180 basis points, adjusted PPNR increased 8%, and adjusted earnings per share was up $0.21. As we move through the detailed slides, we will walk through the drivers of performance in more detail. On slide 8, we walk through our net interest income and margin performance in the second quarter. Our margin compressed by 3 basis points and NIM settled into the high 3.40s as we expected, reflecting the rate environment evolution into a flat-to-up expectation. We grew NII by $9 million this quarter, reflecting our strong loan growth. On slide 9, we cover details around our deposit performance in the quarter. Period-end balances increased by $1.6 billion compared to the prior quarter, driven primarily by growth in brokered deposits. The average rate paid on interest-bearing deposits increased to 2.33%, which is a 5 basis point increase from the prior quarter. While deposit costs came up due to the competitive environment and portfolio blend, our cumulative deposit beta remains strong at 66% since rates started to fall in September 2024. The rate paid increase in the quarter is in line with the patterns we saw in 2025. While the environment remains competitive, we saw average cost of client interest-bearing deposits remain roughly flat in the quarter. As always, we remain focused on growing our core deposit base and prioritizing relationship growth to sustainably and profitably grow our balance sheet. On slide 10, we cover our quarterly loan growth. Period-end loans increased by $953 million from the prior quarter, driven by $1 billion in commercial loan growth. This growth includes $710 million in C&I growth, excluding loans to mortgage companies, and $175 million in commercial real estate growth, which reflects the momentum we have seen in that portfolio over the last few quarters. Loans to mortgage companies grew $118 million in the quarter, which reflects normal homebuying seasonality with some headwinds from the rate environment. We saw strong production in the quarter with new commitments up more than 50% year-over-year driven by commercial real estate activity. This creates an opportunity for flat to slightly up CRE balances this year as construction projects fund up over time. Additionally, our pipelines remain strong across our business lines and throughout our footprint. Our commercial loan spreads remain generally consistent with prior quarters amidst the competitive environment for loan growth. Turning to slide 11, we detail our fee income performance for the quarter, which decreased $1 million from the prior quarter excluding deferred compensation and is up $14 million year-over-year. We saw a quarter-over-quarter decline in fixed income revenues due to a decrease in ADRs to $594 thousand; this is still an 8% increase year-over-year. Lower ADRs were driven by macroeconomic volatility amidst a changing geopolitical environment and uncertain rate environment. The decline in fixed income is partially offset by increased brokerage, trust, and insurance income from continued momentum in our wealth management business and increased client activity. This is one of the revenue-driven profitability lines that we see driving our $100 million-plus PPNR opportunity. On slide 12, we cover adjusted expenses that, excluding deferred compensation, increased $6 million from the prior quarter. Personnel expenses, excluding deferred compensation, increased by $1 million from last quarter driven by a $4 million increase in salaries and benefits. This reflects hiring as well as a higher day count. Outside services increased by $10 million which primarily reflects typical seasonality with higher marketing expenses that are partially offset in other noninterest expenses by reduced client cash incentive payouts from prior quarter marketing programs. Turning to credit on slide 13, net charge-offs increased by $4 million to $33 million. Our net charge-off ratio of 20 basis points remains in line with our expectations for the year. Our provision for credit losses was $15 million in the quarter, and our ACL to loan ratio declined to 1.24%, driven by mix change in the portfolio and continued credit resolutions as NPLs declined 13 basis points to 0.81%. Our teams continue to do an excellent job of working with our clients to resolve credit issues. As rates decreased over the last several quarters, we have been able to consistently find ways to resolve credit and maintain our strong credit performance. On slide 14, we ended the quarter with CET1 of 10.5%, which is in line with our near-term target. We had strong loan growth as well as buybacks of 4 million shares totaling $100 million this quarter. Our tangible book value per share ended the quarter at $14.53 and is up 7% year-over-year, which includes buybacks of $807 million and an increase to our dividend. We continue analyzing the potential impacts of Basel III and currently expect an approximate 10% reduction in risk-weighted assets under the standardized approach as it is currently proposed. I will wrap up on slides 15 and 16. We continue to reiterate our full-year expectations as outlined on slide 15. While the macroeconomic environment and competition may change, our business model creates resilient earnings and our associates consistently deliver on expectations, including our $100 million PPNR opportunity. Now I will give it back to Bryan.
Thank you, Hope. The second quarter of 2026 was very similar to what we saw in the second quarter of 2025 regarding deposit competition and increases in deposit costs, macro volatility impacting fixed income revenue, and various other seasonal patterns like homebuying and marketing campaigns. Ultimately, we create value for our shareholders by prioritizing full relationships with clients who value the services we provide. The work we have done over the last 18 months to create a clear common understanding of the ways we win in the market and how we prioritize profitability and our objectives strengthens our ability to deliver results to our investors. On the whole, we feel very good about where we are and how we are executing. Our job is to stack one good quarter on top of the next by serving clients well and staying disciplined rather than reacting to economic volatility and market changes. Expense discipline remains a priority as we continue to strategically invest in talent, technologies, and tools that make our associates more effective for clients. Capital is a strength for us. Near-term, we are managing the CET1 ratio around 10.5% while we continue to support organic growth. We will stay thoughtful on capital deployment and be opportunistic with share repurchases. We believe we can operate a lower CET1 ratio over time as conditions allow. Our footprint and operating model continue to serve as competitive advantages. By pairing big-bank capabilities with a community bank touch, we are well positioned to attract full clients and grow with the markets and lines of business we serve. Thank you to our associates for their hard work and to our clients and shareholders for their continued confidence in First Horizon. Rebecca, with that, we will open it up for questions.
分析師問答
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Jon Arfstrom with RBC Capital Markets.
Hey. Good morning. Just wanted to ask a couple of questions about the revenue environment. Hope, can you touch a little bit on the deposit cost outlook and help us understand what you are seeing? I know you said the average client interest-bearing deposits were roughly flat sequentially, but what can we expect from here on deposit costs and funding costs in general?
Good morning, John. Thanks for the question. As we look out at where deposit costs will go for the rest of the year, I expect it to look very similar to last year. If you look at what happened in 2025, following the rate cuts at the end of the year, rates came back up and competition increased. If we continue to see this trajectory, I do think our beta will continue to shrink slightly. But I want to make the point 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 would give some back once rates stopped cutting. So this is as expected, John. Also, Q2 and Q3 is the most competitive time for offers. You see in our expenses every year in Q2 we talk about the increased marketing cost that goes with those acquisition offers. For the back half of the year—Q3 and Q4—it does depend on which way rates go. As I mentioned in my prepared remarks, as Brian did, the uncertain outlook for the next rate move this year—whether it is an increase or decrease—will drive that. But I do expect deposit costs to continue to increase, consistent with what we saw last year as rates moved.
Mhmm. Okay. And then I guess, loan competition and yields: I see a little bit of compression this quarter. But do you feel like it is still rational, Brian? Anything you would like to flag in terms of yields? Anything that is more competitive than other areas?
Yes. I would describe the loan markets, John, as maybe a little surprisingly optimistic. Pipelines have continued to be very strong, whether it is customer requests for lending or just in anecdotal conversations with customers—people are still very optimistic about the economy and very forward leaning. So I am surprised at how optimistic things feel given some of the uncertainty around oil and the conflict in the Middle East. Loan pricing and structure: I can always give you anecdotes where it seems very competitive, and it is very competitive for larger transactions in particular. At the end of the day, I think over the course of this year the demand for deposits and lending will probably put a little bit of pressure on relative spreads on both sides of the balance sheet as the economy continues to churn forward in a very positive fashion.
Yeah. Okay. So a little pressure on spreads, but feeling good about volumes is the summary.
Yes. Very accurate. Thank you very much.
Thank you. Have a great day.
Your next question comes from Michael Rose with Raymond James. Please go ahead.
Hey. Good morning, guys. Maybe we can just start on the ADR side. I know you gave an interquarter update based on where the curve is now and the expectations for rates. I know it's hard to forecast, but can you just talk about the puts and takes in that business given where we are?
Yeah. I will start. It is hard to put a beat on it. ADRs last week were very strong. Rates are moving and are very volatile given what is going on in the marketplace. Given the CPI and the PPI today, the market is taking some of the expected certainty around increases in rates over the back half of this year out. I think we are in a channel where volatility is going to have a real-time effect on what is happening in the fixed income business. When rates move higher, investors see it as opportunistic and we see ADRs pick up; as rates trend down, you see less volume. On the whole, it feels like the back half of this year is not going to be as strong as the back half of last year, but I cannot predict how rates will move given the uncertainty around the Middle East and oil and what the Fed will do. We will know more 30, 60, 90 days from today. But there are very positive signs, like last week, which was very strong.
Perfect. And maybe just a follow-up there. When we do get capital reform, that obviously would benefit the system as a whole. Would you expect to see more volume from that? Not all of it can be returned through buybacks and dividends, so I would assume some of it will be put into securities and that could benefit the business.
Yes, I think it is possible. I agree that buybacks will return some capital, but the relative effect on risk weightings will impact where people feel like they can lend, and you might see some lending activity come back from the secondary markets. On the whole, it is generally a positive thing for the fixed income business, but I would not speculate today on how large that effect will be.
Alright. Maybe one follow-up. Last quarter we spent a lot of time talking about NBFI and things like that. It does not seem to be a real topic this quarter—the improvement was good. How much better can it really get in your eyes? And if volatility persists, could we start to see things turn the other way?
Hey Michael, good morning. The short answer on NBFI is there has been no real change since the last quarter. It continues to be a relatively steady-performing portfolio for us with no major concerns. I am not necessarily looking for it to get materially better; I expect the consistent, steady performance that we have already had. That is what I am expecting, and that is what we are managing toward.
Alright. Great. Thanks for taking my questions.
Thank you.
Your next question comes from Jared Shaw with Barclays. Please go ahead.
Thanks, and good morning. Maybe going back to the deposit discussion: were there any unique drivers of some of the non-time interest-bearing runoff, and how should we look at the outlook for broker deposits from here?
Sharon, there were no main themes. It was pretty broad-based when we looked at where we saw changes in balances. It is not loss of clients quarter-over-quarter; it is the average balance in their accounts. One trend we did see is money moving from traditional money markets or CDs back into the equities market in our wealth business. We have seen a little churn there, but no real main theme. I think, as we know, consumers have less cash flowing through their checking accounts and are spending down savings, and our commercial clients are funding up projects and putting that cash to work.
Okay. Thanks. Then looking at the securities side, you continue to run that down and use it to fund other growth. How low should we expect securities as a percentage of assets to go? Are you doing anything differently in terms of purchases compared to the average yields in the second quarter?
We have not been aggressively running it off; it varies a percentage point or two quarter-over-quarter as you look at how the total balance sheet is comprised. We continue to reinvest. We have $1.2 billion rolling off at approximately 2.8%, and we are replacing that at over 4% right now. I say 'right now' because the rate outlook continues to change. There is positive momentum for earnings there, but we do not expect a major shift in mix on the balance sheet.
That securities portfolio today is about 11% of total assets or thereabouts. We try to run that portfolio as small as we can because we do not believe we create economic value for our shareholders or our customers from that portfolio. There is a floor to it: we maintain the securities portfolio for liquidity, to balance our asset-liability sensitivity, and to provide collateral for public funds. Given the opportunity, we would allow that to migrate down.
Great. Thank you.
Your next question comes from Bernard Von Gazzicchi with Deutsche Bank. Please go ahead.
Hi, good morning. First question on brokerage, trust, and insurance fees: they have been growing nicely versus the year-ago period and versus the first quarter. Could you provide color on what is driving results? Is it a combination of macro and micro factors? Thoughts on how you expect revenues to trend in the second half of the year? I believe you mentioned increased wealth management penetration across the footprint, with $5 million recognized in 1H 2026 as part of the growth.
Thank you. In Q3 of last year, we completed our conversion onto the LPL platform, which has allowed us to deepen product penetration with existing clients as well as bring new clients onto the platform. We have been hiring wealth advisers and building out our deepening initiative—where we look to cross-sell wealth to commercial clients. I expect that momentum to continue as we get the benefit of growing our franchise through the LPL partnership and new wealth advisors.
Great. Then a follow-up on the hirings you mentioned—hiring 53 during the quarter. Any color on the mix: upfront versus mid- to back-office during the quarter or year-to-date, and any expectations on hirings in the second half?
We are continuing to hire bankers across our footprint as we did last year. It is pretty broad-based in some key growth areas as well as businesses like wealth. We are not adding significantly to support areas right now; we are focused on creating efficiency so the front office can scale without adding support partners. The one exception is fraud: we are continuing to invest people into our fraud business as it gets more difficult to prevent fraud for both consumer and commercial clients.
Bernard, I am proud of the hiring we've done over the last 12 to 18 months. We have attracted very strong talent, and we are seeing positive results. I am optimistic that over the next two to three years you will continue to see that momentum build. We feel very good about our hiring in the marketplace.
Great. Thanks for taking my questions.
Thank you.
Your next question comes from Janet Leigh with TD Cowen. Please go ahead.
Good morning. Following up on deposits: is there room for broker deposit balances to unwind versus the $2 billion increase in the quarter? And could interest-bearing deposit cost in the third quarter come in below the 2.43% spot rate given the CECL strength and core deposits?
Janet, absolutely—that is a possibility. We do not try to fund loan growth primarily with brokered deposits. We have seen two successive quarters of strong loan growth and the seasonality of deposit campaigns when clients move deposits. It tends to pick up in Q2 and Q3, and we would trade that in by paying down brokered deposits. Whether deposit cost comes in lower than where we ended the quarter is hard to know this early; it depends on the changing macroeconomic and rate outlook. But our goal is to continue to grow customer deposits to fund loan growth.
Got it. And on the 2026 revenue growth guide: if we assume current mid-single-digit loan growth, relatively stable countercyclical fee businesses, and NIM likely coming down if deposit costs are rising, that implies revenue growth at the low end of the 3% to 7% range. Is that a fair baseline assumption, or what are the levers to do better than the low end?
I think that's a reasonable scenario to run. We run a series of different scenarios in a changing rate environment and economic outlook. One important point is that if NII is growing and NIM compresses slightly, that can still be positive for revenue growth over the year. For the back half of the year, it really depends on what happens with the rate outlook and how our countercyclical businesses perform. FHN Financial had a great second half last year, so to get to the higher end of that range you would need to be equal to or outperforming that. Also, if rates increase, our asset-sensitive balance sheet would pick up more NII on the same balance sheet without growth. We have run all of those scenarios for the back half and feel confident we'll be well within that range.
The other lever is improving the profitability of the balance sheet. If you look at loan growth over the last year and improvement in PPNR, we are outpacing balance sheet growth. There is real upside from improving profitability, and we are getting very good traction to improve every dollar of capital allocated to the business. The combination of all of that gives us confidence in the framework for 2026 that we outlined earlier this year, even with recent uncertainty around interest rates and oil in the Middle East.
Thank you.
Thank you.
Your next question comes from Casey Haire with Autonomous Research. Please go ahead.
Thanks. Good morning, everyone. Wanted to touch on expenses. The expense guide you reiterated assumes expenses hold flat with this second quarter run rate. Outside services was up quarter-to-quarter and it ramped last year. So just wondering, do expenses hold flat with the second quarter run rate and what is the outlook on outside services?
Casey, you nailed it. We are expecting expenses to be flat from here out. We did have in the back half of last year one-time expenses related to finishing projects that will not repeat this back half. You will see movement between outside services and other as related to marketing campaigns. Right now we are in acquisition mode, so marketing hits above the line and we will pay the cash incentives later; you will see DDAs increase this quarter and cash incentives pay out in future quarters. But we expect flat expenses over the next two quarters.
Great. And then a two-parter on credit: ACL down 18 basis points over the last year and a nice NPL reduction this quarter. How low can the ACL ratio go? And separately, can the NPL momentum continue—can you drive it lower from 81 basis points?
Hey Casey. I'll answer in a few parts. The 18 basis point reduction you mentioned is driven by a combination of factors: diligent portfolio management, continual decreases in special mention and substandard assets, positive NPL resolutions this quarter, and consistent low net charge-off performance. It also reflects economic outlook to some degree. The 1.24% ACL at quarter end is still over six times our average net charge-offs over the last year and more than seven times over the last two years, so I would characterize that as well reserved relative to our performance. As for where ACL goes from here, I would not speculate because, while there are internal things we can control and will continue to focus on, there are external economic factors—unemployment, interest rates, inflation, geopolitical risk—that influence ACL. Regarding NPLs, the reduction of 13 basis points this quarter is a result of upgrades, payoffs, restructurings, and positive resolutions. We will continue to prioritize minimizing losses and maximizing recoveries rather than timing, and we will take a long-term view rather than seeking quick resolutions.
Great. Thank you.
Your next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
Hey. Good morning. First for Hope and Bryan: you mentioned RWA down about 10% under the standardized approach, which is roughly 110 basis points of CET1. How are you thinking about capital allocation given a CET1 at the higher end around 10.5%? Would buybacks be attractive once there's finality on the rules, or beyond organic growth where else could you deploy capital? It does not feel like organic growth will absorb all of the excess capital.
Ebrahim, thanks. It is a combination of options and depends on the outlook. We look at capital via stress testing—we do an annual stress test even if not required—and review with our board over the next one to two years: do we need capital to fund loan growth? Loan growth is the priority for how we want to use capital. Second, what is the right level of dividend, and third, share buybacks. When we look toward a potential 10% reduction in RWA under the standardized approach, we evaluate not just this quarter but how we would use that capacity to grow the balance sheet. Timing is uncertain—when Basel III endgame will be implemented and the economic environment at that time. We came into the year expecting mid-single-digit loan growth; I see an environment where we could get back to high-single-digit or 10% loan growth given the Southeast's growth, but I do not know when that would materialize relative to Basel timing.
Got it. And separately, appreciate you outlining the $100 million PPNR opportunity. Competitors are acquiring banks, adding branches, and hiring bankers. What are the top three areas where you are investing from a growth standpoint? Banker hiring, branching, or other areas?
We are investing across a number of fronts, and technology is a big one you did not mention. We continue to invest in technology, including mobile and AI deployment. We are building branches not so much in new markets but in existing markets where we can improve density—Raleigh, Durham, Chapel Hill are examples. We've hired broadly to go deep and broader, mostly commercial and wealth relationship managers and customer-facing bankers. We made a huge push in technology following the termination of the merger agreement; that work is largely complete, but we continue to invest. We feel good about controlling expenses in a flattish corridor while continuing to invest in talent and growth.
Got it. Thank you.
Your next question comes from Ben Gurlinger with Citi. Please go ahead.
Hey. Good morning. A follow-up on funding mix: given your seasonal balance sheet, is there any reason why 4Q 2026 should have a materially different percentage mix of funding relative to 4Q 2025? In other words, should we expect seasonality to play out similarly?
No, there is nothing to suggest we should not expect the seasonality to play out. This year, deposit cost and deposit growth are trending as we have seen following rate cuts that then stopped. We cannot predict the next rate movement. The only thing that would change that materially would be a late-year mortgage warehouse spike or mortgage refinance late in the year. But absent that, we expect seasonality to continue.
Okay, that's helpful. Thank you.
Thank you.
Your next question comes from Anthony Elian with JPMorgan. Please go ahead.
Hi. Good morning. On deposit costs: last quarter you pointed to a slight pickup and you saw a 5 basis point increase on average in Q2. Would the pace of deposit cost increases in the second half be higher than the increase you saw in Q2 given where the spot rate is now and the comments on Q3 and Q4 being the most competitive for deposit offers?
It's hard to pin down within a basis point this early in the quarter. The biggest piece is how much loan growth we get. We talked about another great quarter of originations that will fund up. How we fund growth matters. Mortgage warehouse is seasonally higher in the summer and we match-fund mortgage warehouse with wholesale funding traditionally. So you have to look through the cycle and not just quarter-to-quarter. It is hard to tell exactly where we will be in 75 days, but we are trending consistently and continuing to manage customer costs.
My instincts are that, with uncertainty around rate direction and a current bias in the market for rising rates, people are trying to lock in funds today in anticipation of higher rates. That changes the mix a bit: more CD offers, very competitive money market rates. There's a secular shift where the cost of deposits is drifting toward wholesale cost as interest-rate transparency increases. My gut is you could see rates drift up a bit over the next quarter, but there are many moving parts. Our focus is to be thoughtful and competitive in building client relationships and paying customers fairly for the business they do with us.
Thank you. On NIM: last quarter you indicated a range of high 3.40s for Q2. How are you thinking about NIM for Q3 given your earlier comments on deposit costs?
We expect NIM to settle this year in the mid-3.40s to high-3.40s, with variation of a basis point or two. Mortgage warehouse is a high-spread business, so as that funds up you can see some margin compression but it is positive to NII. The important point is deposit growth is tied to loan growth. Even with slight NIM compression, deposit growth funding loans is positive for NII. We've said for several quarters we expect normalized NIM for 2026 in the mid-to-low 3.40s; we are at 3.49 now, so that gives room relative to full-year guidance. There are many moving parts, but we feel confident in the full-year guidance.
You cannot spend a NIM, which is a ratio; you spend NII in dollars.
Thank you.
Your next question comes from Timur Braziler with UBS. Please go ahead.
Hi. Good morning. Hope, on the seasonal deposit campaigns you are running, can you talk through the magnitude of those and where pricing should go for seasonal campaigns?
Yes. The headline rate is not how deposits are working now. We are much more granular with targeted specials by city and by deposit tier. We tier lower-end deposits versus higher JUMBO CDs, which command a premium rate. Unlike 2023 when offers were more uniform, today's deposit competition is not equal across states and cities. We are getting more intentional about where we grow and at what rate, which helps us manage deposit cost more consistently through the cycle compared to 2022 and 2023.
We have invested in cash offers for noninterest-bearing deposits and are seeing positive traction. That effort builds primacy—the core account customers use—and we are investing market dollars both in noninterest-bearing and interest-bearing deposits depending on the markets and parts of the curve we target.
Okay. If we do get a 25 basis point hike, what does the margin trajectory look like with one hike?
It would be the opposite of what we saw with rate decreases: loan yields reprice up first and deposit pricing lags, so you would see some margin expansion in that first quarter and then some compression as deposits reprice. There is a lag depending on term—three months to three years depending on product—so you have to let that play through. Over a 12-month period, you would expect the repricing to balance.
Our business model is balanced through the cycle. Given ADRs today, a rate increase would likely be incrementally positive since ADRs have been relatively low, yielding incremental interest sensitivity benefits rather than aggregate sensitivity.
Great. From your seat, what are you seeing on broader M&A? Are conversations as quiet as activity suggests, or are there books coming across your desk?
From my perspective, I'm focused on driving profitability. As a macro observer, given the significant M&A activity in mid-to-late 2025 and relative absence in the first half of 2026, activity feels more benign today than it did 12 months ago. That likely reflects multiple factors, including uncertainty about credit and geopolitics.
Great, thank you.
Your next question comes from Brooks Sutton with Jefferies. Please go ahead.
Hey. Good morning. You mentioned the $100 million-plus revenue opportunities across treasury management, CRE pricing, wealth management, and the regional specialty partnership model. As you sit here today, which initiative has the longest runway for growth and where are you seeing the strongest client adoption?
I think they all have long runways. The most significant ability to create value is deeper penetration of existing relationships where we have loan-only or near loan-only relationships. Our treasury management teams are making more calls with relationship managers, and introducing private client wealth teams into those relationships has strong potential. This work is executed relationship by relationship; we've been focused on it for 18 to 24 months and are seeing positive signs in the balance sheet and PPNR improvement relative to balance sheet growth. We are encouraged about achieving the targets we've laid out.
Great. Thank you very much.
Your next question comes from Christopher Marinac with Breen Capital. Please go ahead.
Hey. Good morning. Brian, how do you think about ROTCE as it relates to matching charge-offs with provision or having provision slightly less? I know Tom talked about this earlier, but curious how you think about ROTCE from that framework.
I start with the bias that creating the maximum return on the capital we deploy is ideal. It's harder to frame provision versus charge-offs strictly through ROTCE because under CECL we provide for expected lifetime losses on every loan. The real drivers of variation will be what happens with the economy and the new production we put on. Our credit cost should remain at the lower end of the industry range over time. Provisioning will have volatility based on macro factors, but we control underwriting and resolutions. Our bias is to improve profitability, control credit costs, and be predictable to customers and shareholders. If we do those things, ROTCE should improve over time.
That's fair, Brian. Thanks for your perspective and for taking the questions.
Your next question comes from Christopher McGratty with Keefe, Bruyette & Woods. Please go ahead.
Great. Thanks for squeezing me in. On slide 16, the lower-right quadrant shows the path to the $100 million PPNR. I want to clarify: is the message here that you are roughly 15% to 20% of the way to that $100 million? And when do you think you'll get the full $100 million? You originally put that $100 million estimate out about a year ago and said it's roughly a 2- to 3-year exercise. Any update on timing?
I said a year ago it's probably a two- to three-year exercise and I still think that. The slide is not intended to signal a specific percentage of completion. We are in progress and continuing to work on it. We expect this to take time, and when we achieve the initial $100 million, I expect we'll continue to pursue additional opportunities. The slide gives examples but is not an inclusive list.
Got it. Thank you.
Your next question comes from Gerard Sweeney on for John Pancari with Evercore. Please go ahead.
Hey. Good morning. You sounded pretty healthy on credit. Last quarter you mentioned watching consumer-sensitive areas like trucking, auto, and restaurants. Would you say these are performing better than expected so far in Q2 and into Q3, or are these still areas to watch? Any other areas to keep an eye on?
Those sectors remain ones we watch closely, and I would say they have proven to be very resilient so far. We continue to monitor them because there is increasing pressure on lower-end consumers and spending power. But within retail, restaurants, and similar sectors, performance has been surprisingly resilient. They remain elevated in credit risk relative to other industries, so we will continue to monitor.
Okay. Thank you. One last question: on the hiring comments you made earlier, what has been the bigger driver of attracting talent to First Horizon? Have you seen opportunities from M&A in your markets that could create dislodged relationship managers or attrition?
I think our attractiveness comes from combining big-bank capabilities with community-bank autonomy—'big-bank muscle and small-bank hustle.' Relationship bankers value the ability to understand and deliver a broad product set with confidence while offering a personalized client experience. That combination has helped us attract strong talent and gives bankers the autonomy and platform they seek.
Okay. Great. Thank you very much.
Thank you.
There are no further questions at this time. I will now turn the call back to Bryan Jordan, Chairman, President, and CEO, for closing remarks.
Thank you all for joining us this morning. Thank you again to our associates and our shareholders for all that you do for the organization. Please reach out if you have any further questions. Hope everyone has a great day.
This concludes today's call. Thank you for attending. You may now disconnect.