First Horizon (FHN) Q2 2026 Earnings Call Transcript
Wednesday, July 15, 2026 at 9:30 a.m. ET
Head of Investor Relations - Tyler Craft
Chairman, President and Chief Executive Officer - Bryan Jordan
Chief Financial Officer - Hope Dmuchowski
Operator: Welcome to the First Horizon Second Quarter 26 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. And To withdraw your question, star 1 again. I will now hand the conference over to Tyler Craft, Head of Investor Relations.
Tyler Craft: Thank you, Rebecca. Good morning. Welcome to our second quarter 26 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. And with that, I will hand it over to Brian.
D. Bryan Jordan: Thanks, Tyler. Good morning, 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 25. 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 client to benefit most from the value we provide remain 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. comments. Hope?
Hope Dmuchowski: Thank you, Brian. Good morning, everyone, and thank you for joining us today. Starting on slide 6, we highlight our strong earnings momentum. Shown by our results for both the second quarter and the first half of 26. 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 25, 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 which saw NIM settle into the high 340s 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 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 in 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 home buying 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. So 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 1 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 prior quarter. Personnel expenses, excluding deferred comp, increased by $1 million from last quarter driven by a $4 million increase in salaries and benefits This reflects hiring as well as higher day count.
Outside services increased by $10 million which primarily reflects typical seasonality with higher marketing expenses, that are partially offset in other non interest expenses by reduced client cash incentive payouts from prior quarter's 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 in 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 Brian.
D. Bryan Jordan: Thank you, Hope. The second quarter of 26 was very similar to what we saw in the second quarter of 25 regarding deposit competition and increases in deposit costs. Macro volatility impacting fixed income revenue various other seasonal patterns like home buying 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 1 good quarter on top of the next by serving clients well, 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 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.
Operator: We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 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 Markets.
John R: Hey. Just wanted to ask a couple of questions about the revenue environment. Hope, can you touch a little bit on the deposit cost outlook 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?
Hope Dmuchowski: Good morning, John. Thanks for the question. As we look out as to where deposit costs will go in the rest of the year, I expect it to look very similar to last year. As you looked at what happened in 2025, following the this cuts at the end of the year, rates came back up. The competition increased. And if we continue to see this trajectory, I do think that, our beta will continue to shrink slightly. But I wanna 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.