First Horizon Corporation (FHN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company maintains strong revenue guidance and expects profitable loan growth, supported by economic growth and Fed rate cuts. Positive credit trends and strategic investments are noted. While expenses are high, they are expected to normalize, and capital management includes buybacks. The Q&A highlights optimism in ROTCE targets and deposit growth. Despite some management evasiveness, the overall sentiment is positive, with strong financial metrics and optimistic guidance suggesting a stock price increase.
Key Financial Performance
Pre-provision net revenue and return on tangible common equity Increased, hitting 15% in the back half of 2025. This was driven by improved balance sheet profitability through a better loan mix and pricing, disciplined control of deposit costs, and tighter integration of deposits within client relationships.
Yields on market-based commercial real estate lending for new 2025 originations Improved by 34 basis points year-over-year. This contributed to improved profitability.
Capital returned to shareholders Just under $900 million in stock repurchases and just over $300 million in dividends. This was enabled by clarity around economic conditions and regulatory trends.
Earnings per share (EPS) $0.52 for the fourth quarter of 2025. No specific year-over-year change or reason was mentioned.
Net interest margin (NIM) 3.51% for the fourth quarter of 2025, compressed by 4 basis points. Excluding the impact of the Main Street Lending Program accretion, NIM expanded by 2 basis points due to deposit pricing improvements and strong growth in loans to mortgage companies.
Net interest income (NII) Increased by approximately $2 million in the fourth quarter of 2025. This was driven by deposit pricing improvements and strong growth in loans to mortgage companies.
Deposit balances Increased by $2 billion compared to the prior quarter. The average rate paid on interest-bearing deposits decreased to 2.53% from 2.78% in the third quarter.
Loan growth Period-end loans increased by $1.1 billion or 2% from the prior quarter. This was driven by a $776 million increase in loans to mortgage companies and a $727 million increase in the rest of the C&I portfolio.
Fee income Increased by $3 million from the prior quarter, driven by $4.4 million in income related to elevated activity in the equipment finance lease businesses.
Adjusted expenses Increased by $4 million from the prior quarter. Personnel expenses rose by $12 million due to $8 million in incentives and commissions, while outside services increased by $16 million due to technology and product initiatives and advertising expenses.
Net charge-offs Increased by $4 million to $30 million in the fourth quarter of 2025. The net charge-off ratio was 19 basis points, in line with expectations.
Allowance for credit losses (ACL) to loan ratio Declined to 1.31% due to broad improvement across the commercial portfolio and payoff of non-pass credits.
Common Equity Tier 1 (CET1) ratio Ended the quarter at 10.64%, down due to buyback activity and strong loan growth, including high loan-to-mortgage company growth.
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Operating Highlights
Technology and product initiatives: Investments in technology and product initiatives were highlighted, with increased advertising expenses and project costs.
Loan growth: Loan growth of 2% was achieved in Q4 2025, with significant increases in loans to mortgage companies and C&I portfolio.
Deposit performance: Deposit balances increased by $2 billion in Q4 2025, with a decrease in average rate paid on interest-bearing deposits.
Profitability improvement: Improved balance sheet profitability through better loan mix, pricing, and disciplined deposit cost control.
Net interest income and margin: Net interest income grew by $2 million, and net interest margin expanded by 2 basis points excluding specific impacts.
Fee income: Fee income increased by $3 million, driven by elevated activity in equipment finance lease businesses.
Capital returns: Returned $900 million in stock repurchases and $300 million in dividends in 2025, with plans for additional returns in 2026.
Strategic framework: Implemented a 5-page strategic framework to align associates and drive consistent execution.
Expense discipline and efficiency: Focused on maintaining expense discipline while investing in technology, personnel, and new branches.
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Risk or Challenges
Net Interest Margin Compression: The company's net interest margin compressed by 4 basis points, which could impact profitability. Although there was a slight expansion excluding certain factors, the overall compression remains a concern.
Credit Losses and Charge-Offs: Net charge-offs increased by $4 million to $30 million, and the net charge-off ratio is at 19 basis points. While this is within expectations, it reflects ongoing credit risks.
Regulatory and Economic Uncertainty: The company mentioned clarity around economic conditions and regulatory trends as a factor for capital return decisions, indicating potential risks from regulatory or economic changes.
Expense Growth: Adjusted expenses increased by $4 million, driven by personnel expenses and project costs for technology and product initiatives. Rising expenses could pressure margins if not offset by revenue growth.
Loan Growth Risks: While loan growth was strong, high growth in loans to mortgage companies and commercial lending could expose the company to credit risks, especially in a changing economic environment.
Deposit Pricing Pressure: Although deposit costs declined, maintaining favorable deposit pricing in a competitive market could be challenging, potentially impacting net interest income.
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Guidance & Outlook
Revenue Growth: The company expects total revenue growth of 3% to 7% year-over-year in 2026, accounting for various interest rate and business mix scenarios.
Balance Sheet Growth: Mid-single-digit balance sheet growth is anticipated for 2026.
Operating Leverage: Positive operating leverage is expected in 2026.
Expense Outlook: Expenses are expected to remain flat, except for incremental incentive expenses tied to higher countercyclical revenue and investments in technology, personnel, and new branches.
Net Charge-Offs: Net charge-offs are projected to range between 15 to 25 basis points, reflecting confidence in underwriting standards and credit processes.
Tax Rate: The tax rate is expected to be between 21% and 23%, similar to 2025.
CET1 Target: The near-term CET1 target remains at 10.75%, with potential fluctuations between 10.5% and 10.75% due to loan growth. Discussions with the Board may lead to lowering the target to 10% to 10.5% in the intermediate term.
Profitability Objectives: The company aims to sustain and exceed a 15% adjusted ROTCE level, with over $100 million in incremental PPNR improvement opportunities expected to materialize in 2026 and 2027.
Loan Growth: Continued loan growth is anticipated, with positive signs in commercial lending pipelines.
Investments: Ongoing investments in technology, tools, and talent are planned to enhance associate effectiveness and customer value.
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Shareholder Return Plan
Total dividends in 2025: Just over $300 million in dividends were returned to shareholders in 2025.
Total share repurchases in 2025: Just under $900 million of capital was returned through stock repurchases in 2025.
New share repurchase program: A new repurchase program of $1.2 billion was announced at the end of October 2025, with just under $1 billion of authorization remaining.
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Key Q&A
Q:What is the revenue outlook for the company and what factors influence it?
A:The revenue outlook is 3% to 7%, equating to about $135 million. The base case is the current forward curve. Factors influencing the range include rate changes, loan growth (targeting mid-single-digit growth), and countercyclical trends such as increased home buying and refinancing activity.
Q:What is the expense outlook for the company and how does it normalize post-investment?
A:The company expects flat expenses for the year. Post-investment, expense growth is expected to normalize to inflationary levels, around 2.5% to 3%, driven by wage and contract inflation.
Q:What are the key drivers of mid-single-digit loan growth expectations?
A:Key drivers include expected growth in mortgage warehouse lending, strong momentum in C&I loans, stabilization in CRE, and new production in large construction CRE projects. The company also anticipates growth in the broader C&I area.
Q:What are the expectations for deposit growth and its key drivers?
A:Deposit growth is expected to outpace loan growth. Key drivers include a new treasury management system, additional products, new-to-bank offers, and branch openings. The company is also focused on deepening relationships with existing clients and attracting new ones.
Q:What is the outlook for net interest income (NII) and fee income?
A:NII growth is expected to be in the low to mid-single digits, influenced by deposit betas and loan growth. Fee income growth depends on mortgage refinancing activity and FHN Financial performance, with potential upside from gain on sale for mortgages and ADR trends.
Q:What are the company’s thoughts on M&A opportunities?
A:The company is not prioritizing M&A but is open to small acquisitions that fill gaps in its branch franchise or deposit base. The focus remains on penetrating the customer base, increasing profitability, and leveraging the existing franchise.
Q:Is the company on track to achieve its 15%-plus sustainable ROTCE target?
A:Yes, the company believes it has reached a sustainable 15%-plus ROTCE target on an average basis, though individual quarters may fluctuate due to macroeconomic uncertainties.
Q:What is the outlook for credit and reserve levels?
A:The company has seen strong momentum in reducing criticized and classified assets, with a $30 million reserve release in the quarter. Reserve levels are expected to align with loan growth, and the company believes it is done with the reserve-building phase.
Q:What is the capital management strategy, including buybacks?
A:The company aims to operate with a CET1 ratio of 10% to 10.5% long term. It plans to deploy capital for organic growth and return excess capital through buybacks, depending on economic and regulatory conditions.
Q:What is the outlook for commercial real estate (CRE) growth?
A:The company expects an inflection in CRE growth this year, driven by increased construction starts and a healthy pipeline. CRE commitments have shown a net increase for the first time in two years.
Q:What is the impact of potential interest rate caps on the company’s credit card book?
A:The impact would be minimal, with an estimated cost of $1 million per quarter.
Q:What is the outlook for expenses in the first quarter and the rest of the year?
A:Expenses are expected to normalize after elevated Q4 levels due to year-end true-ups and higher commissions. Marketing and advertising expenses are seasonal and expected to be lower in Q1.
Q:What is the outlook for the net interest margin (NIM)?
A:The NIM is expected to remain in the mid-3.40% range, with some quarter-to-quarter variation. Growth in mortgage warehouse lending and lower deposit costs have supported the margin.
Q:What is the progress on achieving the $100 million incremental PPNR target?
A:The company has made significant progress and expects the target to build over 2026 and 2027, with more contribution in 2027. The target is embedded in the 2026 outlook.
Q:What are the company’s expectations for C&I loan growth?
A:C&I loan growth is expected to continue, driven by strong pipelines across regional and specialty businesses. Utilization rates are expected to improve as customer optimism grows.
Q:What is the outlook for fixed income revenue and ADR trends?
A:Fixed income revenue and ADR trends were impacted by a government shutdown in Q4 but showed improvement in the latter half of the quarter. The outlook depends on market conditions and volatility.
Q:What is the company’s approach to managing NDFI loans?
A:The company has a disciplined approach to NDFI loans, with a focus on mortgage warehouse lending, which accounts for about two-thirds of the NDFI portfolio. The company takes physical possession of notes and conducts regular field examinations to manage risks.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct breakdown of revenue projections between net interest income and fee income, citing the balanced nature of the business model. Additionally, they did not provide specific details on the timing of achieving the $100 million incremental PPNR target or the exact impact of countercyclical revenues on expense guidance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CET level
CRE portfolio
Conference
Instructions pleasure
Loan deposit
NII Slide
NII margin
NIM basis
PPNR digit
PPNR past
Page presentation
Program accretion
ROTCE goal
Relations Results
Slide detail
Slide driver
Slide objective
Slide team
accretion NIM
activity equipment
activity loan
activity refinances
addition branch
adjustment bonus
associate equity
authorization Slide
average deposit
balance origination
balance quarter
benefit NII
beta rate
bonus end
branch charge
business revenue
buyback activity
buyback team
campaign credit
capital stock
charge expectation
charge fee
clarity condition
client associate
comment end
credit Slide
personnel
progress
repurchase
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Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
