First Horizon Corporation (FHN) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed picture. The basic financial performance is stable with a positive outlook on revenue growth and profitability. However, increased deposit competition and uncertain economic conditions could pressure margins. The Q&A section highlights consistent credit performance and a stable ACL ratio, but management's vague responses on AI impacts and capital proposals create uncertainty. The overall sentiment is neutral, as positive strategic initiatives are balanced by potential risks and uncertainties.
Key Financial Performance
Return on Average Assets (ROAA) 1.30%, up 19 basis points year-over-year. The increase is attributed to efforts to improve the profitability of the balance sheet.
Net Interest Income (NII) Grew 6% year-over-year, outpacing loan portfolio growth of 3%. This demonstrates a focus on profitable growth amidst rate decreases.
Earnings Per Share (EPS) $0.53, an increase of $0.11 over the first quarter of 2025. This reflects strong financial performance and momentum.
C&I Portfolio Growth Grew $624 million in the quarter compared to flat growth in the first quarter of 2025. This growth is attributed to strong pipelines and relationship-focused client activity.
Adjusted Pre-Provision Net Revenue (PPNR) Improved by 8% compared to the first quarter of 2025, reflecting focused execution on business priorities.
Adjusted Return on Tangible Common Equity (ROTCE) 15.1%, an increase of over 200 basis points year-over-year. This reflects strong execution and profitability.
Deposit Balances Decreased by $1 billion compared to the prior quarter, primarily due to reductions in brokered deposits. The average rate paid on interest-bearing deposits decreased to 2.28% from 2.53% in the prior quarter.
Loan Growth Period-end loans increased by $221 million from the prior quarter. C&I loans grew by $624 million, while loans to mortgage companies decreased by $62 million due to seasonality. Consumer loans declined by $198 million, reflecting normal fluctuations.
Fee Income Decreased by $12 million from the prior quarter but increased by $13 million year-over-year. The decrease was driven by seasonality and fluctuations in service charges and equipment finance business.
Net Charge-Offs Decreased by $1 million to $29 million. The net charge-off ratio remained at 18 basis points, in line with expectations.
Provision for Credit Losses $15 million in the quarter, with the ACL to loans ratio declining slightly to 1.28% due to portfolio mix changes.
Common Equity Tier 1 (CET1) Ratio 10.53%, driven by buyback activity and loan growth. Approximately $230 million of common shares were repurchased during the quarter.
Tangible Book Value Per Share $14.34, up 9% year-over-year. This includes $766 million in buybacks and an increase in dividends.
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Operating Highlights
Regional and Specialty Banking Growth: Strong production in both regional banking and specialty verticals, with C&I loan commitments reflecting deepening of existing relationships and new client acquisitions.
Geographic Advantage: The Southeast and Texas remain growth corridors, leveraging a combination of big bank capabilities and personalized community bank services.
Profitability Improvements: Return on average assets increased to 1.30%, up 19 basis points year-over-year. Net interest income grew 6% year-over-year, outpacing loan portfolio growth of 3%.
Loan Portfolio Growth: C&I portfolio grew by $624 million in the quarter, with commercial real estate pipelines showing strong potential for stabilization.
Deposit Management: Deposit costs were effectively managed, with a decrease in the average rate paid on interest-bearing deposits to 2.28%.
Expense Management: Adjusted expenses decreased by $32 million from the prior quarter, driven by reductions in personnel and technology-related costs.
Capital Management: Successfully issued $400 million of Series H preferred stock, increasing Tier 1 capital ratio to 11.95%. Approximately $765 million remains in the current Board authorization for share buybacks.
Focus on Client Relationships: Prioritized relationship banking, deepening treasury and wealth management services, and aligning solutions with client needs.
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Risk or Challenges
Deposit Performance: Period-end balances decreased by $1 billion compared to the prior quarter, driven primarily by reductions in brokered deposits. This could impact liquidity and funding stability.
Commercial Real Estate (CRE) Loans: CRE continues to be a headwind for loan balance growth as stabilized loans moved to permanent markets and non-pass loan resolutions reduced balances. This indicates challenges in maintaining or growing CRE loan portfolios.
Consumer Loan Portfolio: The consumer loan portfolio declined by $198 million in the quarter, reflecting normal fluctuations but also highlighting potential challenges in consumer lending growth.
Fee Income Performance: Fee income decreased by $12 million from the prior quarter, driven by seasonality and fluctuations in service charges, treasury management fees, and equipment finance business. This could affect non-interest income stability.
Credit Loss Provisions: A provision for credit losses of $15 million was recorded, and the ACL to loans ratio declined slightly to 1.28%, driven by mix changes in the portfolio. This indicates potential credit quality concerns.
Macroeconomic and Geopolitical Environment: The evolving macroeconomic and geopolitical backdrop creates uncertainties and potential headwinds for the business, impacting client confidence and market conditions.
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Guidance & Outlook
Revenue Growth: The company expects revenue growth throughout 2026, driven by strong client activity in commercial pipelines, healthy C&I demand, and the strength of its markets in the Southeast and Texas.
Profitability Goals: The company maintains its full-year outlook and aims to achieve $100 million plus in pre-provision net revenue (PPNR) over the next couple of years, with continued focus on expense discipline and underwriting consistency.
Capital Management: The company updated its near-term CET1 target to 10.5% and plans to continue disciplined capital deployment, including opportunistic share repurchases.
Loan Growth: C&I loan commitments are expected to grow, supported by strong pipelines and business owners planning for growth. CRE pipelines are also strong, presenting opportunities to stabilize balances in the future.
Market Position: The company anticipates benefiting from its diversified business model, which balances countercyclical businesses and core banking operations, depending on macroeconomic and geopolitical conditions.
Investment Strategy: Strategic investments will continue in talent, technology, and tools to enhance client service and operational effectiveness.
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Shareholder Return Plan
Dividend Increase: The company increased its dividend during the year, contributing to a 9% year-over-year increase in tangible book value per share.
Share Buyback Activity: The company repurchased approximately $230 million of common shares during the quarter.
Remaining Authorization: Approximately $765 million remains in the current Board authorization for share repurchases.
CET1 Impact: The CET1 ratio of 10.53% was influenced by buyback activity and loan growth.
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Key Q&A
Q:Can you elaborate on the optimism regarding the lending environment and the impact of macro uncertainty on C&I pipelines?
A:The pipelines in C&I remain strong despite macro uncertainties, including disturbances in the Middle East. CRE pipelines are also building, with the strongest levels since 2021-2022. The company is optimistic about lending growth, focusing on profitable and relationship-oriented lending.
Q:Do you expect a seasonal bounce in warehouse balances for loans to mortgage companies?
A:Yes, a seasonal increase in Q2 is expected, with some funding already observed at the end of March and early April. However, due to low mortgage origination and refinance rates, the trend is expected to be consistent with Q1 to Q2 and Q3 of the last two years.
Q:Can you discuss deposit competition and its impact on deposit pricing?
A:Deposit competition has increased, with competitors offering longer guarantees and higher rates. Deposit costs are expected to trend slightly up in Q2 and Q3 if there are no rate cuts. Marketing efforts in Q2 may also lead to a slight increase in deposit costs.
Q:What is the current state of credit and any updates on criticized and classified loans?
A:Credit performance remains consistent, with net charge-offs at 18 basis points. The company is monitoring sectors tied to consumer discretionary spending, such as trucking and restaurants. Exposure to private credit is minimal, with less than 1% of the loan book, mostly backed by tangible assets.
Q:What assumptions are behind the $100 million incremental PPNR opportunity, and how does AI factor into this?
A:The $100 million PPNR opportunity is based on deepening relationships and revenue growth, not cost savings. AI investments are focused on scaling revenue without increasing back-office costs, enabling growth without significant expense increases.
Q:What could lead to a reduction in the 10.5% CET1 target?
A:The company is comfortable with the 10.5% CET1 target but may consider lowering it as economic uncertainties, such as oil prices and inflation, settle. Over time, the company aims to operate with a lower CET1 ratio.
Q:What is the outlook for NII and NIM given deposit cost pressures and asset repricing?
A:Deposit costs are expected to increase slightly, but asset repricing, including $6-7 billion of fixed-rate assets, is expected to offset some pressure. The company is focused on improving balance sheet profitability and expects to navigate deposit trends effectively.
Q:What is the expected trajectory for the ACL ratio?
A:The ACL ratio is expected to remain stable, with minor fluctuations due to loan growth, grade migration, and classified resolutions. The current ACL is approximately 7x the average net charge-offs over the last two years, indicating a well-reserved position.
Q:Can you elaborate on the $100 million PPNR opportunity and its drivers?
A:The opportunity is driven by improved CRE pricing, deeper relationships between regional and specialty banking, and initiatives in treasury management and wealth management. The company is leveraging its market-centric and specialty partnership model to enhance profitability.
Q:What are the contributors to mid-single-digit loan growth expectations?
A:C&I momentum is strong across regional and specialty banking. CRE pipelines are robust, and the pace of payoffs is decelerating, indicating potential net growth in CRE later this year.
Q:What scenarios could lead to the higher or lower end of the 3-7% revenue growth guidance?
A:Higher revenue growth could result from an acceleration in economic growth or a pickup in mortgage or refinance activity. The range reflects economic uncertainties and the potential impact on loan growth and fee income.
Q:What is the outlook for expenses, and are they tied to revenue growth?
A:Expenses are expected to remain flat year-over-year, with variability in marketing and technology project costs. The expense outlook is largely agnostic to revenue growth, except for countercyclical businesses where commissions may increase with higher revenue.
Q:What is the company's stance on M&A given current market conditions?
A:The company remains focused on core franchise profitability and is open to opportunistic M&A, particularly fill-ins within its existing footprint. There is no change in its M&A strategy.
Q:What is the outlook for ROTCE, and how can it be improved?
A:The company aims to continue improving ROTCE beyond the 15% target by enhancing balance sheet profitability, leveraging capital return, and potentially lowering CET1 ratios over time.
Q:What is the sensitivity of the fixed income trading desk to interest rate volatility?
A:The fixed income business benefits from long-term interest rate volatility but faces short-term challenges due to rapid rate changes. The ADR for the quarter was slightly down from Q4 but significantly up year-over-year.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the potential impact of AI on the $100 million PPNR opportunity, stating that it is not currently factored into expense reductions. Additionally, they did not quantify the estimated impacts or benefits of recent capital proposals, citing uncertainties in the model and potential changes in loan terms.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADRs end
CET ROTCE
CI
CRE
Hope
Period end
buyback
capability
client relationship
comment
compensation
credit
day count
decline
decrease
deposit
discipline
fee income
fluctuation
incentive
interest income
line expectation
loan balance
loan portfolio
margin
market loan
model
momentum
mortgage company
pipeline
point Slide
presentation
profitability
rate interest
ratio
seasonality
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term CET
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The earnings call summary presents a mixed picture. The basic financial performance is stable with a positive outlook on revenue growth and profitability. However, increased deposit competition and uncertain economic conditions could pressure margins. The Q&A section highlights consistent credit performance and a stable ACL ratio, but management's vague responses on AI impacts and capital proposals create uncertainty. The overall sentiment is neutral, as positive strategic initiatives are balanced by potential risks and uncertainties.
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Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
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.
