First Horizon Corporation Q1 2026 Earnings Call Transcript

First Horizon Corporation (NYSE: FHN) Q1 2026 Earnings Call dated Apr. 15, 2026

Presentation

Operator

Hello, everyone and thank you for joining the First Horizon First Quarter 2026 Earnings Conference Call. My name is Lucy, and I’ll be coordinating the call today. [Operator Instructions]

It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations to begin. Please go ahead.

Tyler Craft — Head of Investor Relations

Thank you, Lucy. Good morning. Welcome to our first 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’ll be happy to take your questions. We’re 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’s 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 and you should understand that we are not obligated to update them.

And with that, I’ll hand it over to Bryan.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you, Tyler. Good morning, everyone. We started 2026 with strong momentum. In the first quarter, we delivered our third straight quarter of 15% or greater adjusted ROTCE in line with our expectations fueled by strong C&I client growth and relationship-focused client activity across our markets. Through our differentiated business model, we continue to successfully execute by providing tailored solutions to meet client needs and turning insights into profitable outcomes.

We’re focused on building true client relationships, staying disciplined on price and structure and supporting our clients with the full capabilities of our franchise. Our diversified business model with countercyclical businesses positions us well as the operating environment evolves.

I’ll now turn the call over to Hope to walk through our first quarter results. I’ll provide some closing comments at the end of the call. Hope?

Hope Dmuchowski — Chief Financial Officer

Thank you, Bryan. Good morning, everyone, and thank you for joining us today. Over the last year, we have talked a lot about our efforts to improve the profitability of the balance sheet and how we laid out our strategy for the entire organization. That work is evidenced in our results this quarter which includes a return on average assets of 1.30%, up 19 basis points from first quarter last year. Amidst rate decreases over the last year, we have grown net interest income 6% year-over-year, which outpaced our loan portfolio growth of 3% in that same time, demonstrating our continued focus on profitable growth.

We started 2026 with great momentum, including earnings per share of $0.53, which is an increase of $0.11 over the first quarter 2025. Excluding loans to mortgage companies, our C&I portfolio grew $624 million in the quarter compared to having approximately flat growth in the first quarter of 2025. Our performance also includes 8% improvement in adjusted pre-provision net revenue compared to the first quarter of 2025. Our adjusted ROTCE of 15.1% increased over 200 basis points year-over-year.

Starting on Slide 7, we walk through our net interest income and margin performance in the first quarter, which saw NII consistent with the fourth quarter absent day count impacts. Our margin expanded by one basis point on continued strong performance in managing deposit costs following the Fed’s last rate cut in December 2025. While our variable loan portfolio experienced yield declines in the quarter, our deposit pricing discipline offset this impact.

On Slide 8, we cover details around our deposit performance in the quarter. Period-end balances decreased by $1 billion compared to prior quarter driven primarily by reductions in brokered deposits. The average rate paid on interest-bearing deposits decreased to 2.28%, coming down from the fourth quarter average of 2.53%. We maintain a cumulative deposit beta of 69% since rates started to fall in September 2024. Our interest-bearing spot rate ended the quarter at 2.27%.

On Slide 9, we cover our quarterly loan growth. Period-end loans increased slightly by $221 million from the prior quarter. This quarter’s results, which include an impressive start to the year for our core C&I business, which saw $624 million in loan balance growth. This builds on momentum we saw in the second half of 2025 and supported by continued strong pipelines in 2026. Loans to mortgage companies experienced typical seasonality in the first quarter and ended down $62 million versus year end. This business continues to have momentum as a source of strength for our Company. Commercial real estate continues to be a headwind for loan balance growth as stabilized loans move to permanent markets and non-pass loan resolutions reduce balances.

Encouragingly, our CRE pipelines are strong and present notable opportunities to stabilize CRE balances in the future. I will also note that our consumer loan portfolio declined $198 million in the quarter which is in line with normal fluctuations. Our goal for consumer lending is to focus on relationship expansion and profitability. While competition in the market is strong, commercial loan spreads remain generally in the mid-100s base points to upper 200 base points.

Turning to Slide 10, we detail our fee income performance for the quarter which decreased $12 million from the prior quarter excluding deferred compensation and is up $13 million year-over-year. The largest decreases for fee income comes from our service charges and fee lines which was driven by the impact of day count and normal seasonality and other service charges like treasury management fees, interchange income and NSF fees and by quarter-over-quarter fluctuations in our equipment finance business. We saw a slight quarter-over-quarter decline in fixed income revenues due to the decrease in ADR to $742,000, though this is still a 27% increase year-over-year. We saw slightly lower ADRs at quarter end as market volatility increased.

On Slide 11, we cover our adjusted expenses that excluding deferred compensation decreased $32 million from prior quarter. Personnel expenses excluding deferred comp decreased by $10 million from last quarter, driven by an $8 million decline in incentives and commissions which followed higher incentive accruals last quarter. Outside services decreased by $26 million, which includes reduced expenses related to technology initiatives from last quarter and decreased marketing expenses in the quarter.

Turning to credit on Slide 12. Net charge-offs decreased by $1 million to $29 million. Our net charge-off ratio of 18 basis points remains in line with our expectations. We recorded a provision for credit losses of $15 million in the quarter and our ACL to loans ratio declined slightly to 1.28%. This was driven by mix change in the portfolio.

On Slide 13, we ended the quarter with a CET1 of 10.53% driven by buyback activity and loan growth in the quarter. During the quarter, we bought back approximately $230 million of common shares. We have approximately $765 million in our current Board authorization remaining. During the quarter, we successfully issued $400 million of Series H Preferred Stock, which drove the 44 basis point increase to our Tier 1 capital ratio of 11.95%. Our tangible book value per share is $14.34, which is up 9% year-over-year, which includes buybacks of $766 million during that period and an increase to our dividend.

I’ll wrap up on Slide 15. I am proud of the momentum we have to start 2026. We continue to maintain our full year outlook and updated our near-term CET1 target to 10.5% during the first quarter. For the third consecutive quarter, we achieved 15% plus adjusted ROTCE, reflecting our focused execution on our business priorities. We continue focusing on deepening our client relationships, fully delivering our products and services across our excellent footprint and enhancing our capabilities to create value for clients and shareholders. All of this moves us towards achieving the $100 million plus PPNR we noted last year as our opportunity in the next couple of years.

We made initial progress on this objective last year and continue doing so in 2026. Our revenue expectations reflect continued capture of this profitability throughout the year. Expense discipline and underwriting consistency continue to be central to our Company and disciplined capital deployment continues moving us towards our intermediate term CET1 targets.

And with that, I’ll turn it back over to Bryan.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you, Hope. On the whole we feel very good about how we started the year. We’re seeing strong client activity in our commercial pipelines as well as business owners planning for growth. Relationship banking remains our priority, focusing on primary relationships, deepening treasury and wealth management, and making sure our solutions match client needs. In the first quarter, we saw strong production, essentially evenly balanced between our regional banking and specialty verticals. C&I loan commitments reflected both deepening of existing relationships and new client acquisitions, and our CRE pipelines are as strong as they’ve been in years. We manage our business with three priorities, safety and soundness, profitability and growth, which is evident in our results again this quarter. We’re not playing solitaire. Competition is active, but our associates are protecting our base and winning with exceptional service and value.

We expect that discipline, along with healthy C&I demand and the strength of our markets to drive revenue growth as the year progresses. Our diversified model gives us a balance as the macro and geopolitical backdrop evolves. If the rate path is choppy or sentiment shifts, our countercyclical businesses are positioned to contribute. If confidence builds, our core banking engine benefits from client growth.

Credit remains in line with our expectations and we continue to approach opportunities selectively on price and structure. Our footprint is a real advantage. The Southeast and Texas remain growth corridors. We deliver big bank capabilities with the personalized touch of a community bank across our entire footprint. That combination allows us to serve clients locally while bringing the resources of the entire bank when they need them. We remain focused on expense discipline while strategically investing in talent, technology, and tools that make our associates more effective for their clients.

We’ll stay thoughtful on capital management and will be opportunistic with share repurchases. While the macroeconomic environment changes and creates new headwinds and uncertainties, I remain optimistic about our outlook for the year. Our job is to stack one good quarter on top of the next by effectively serving our clients and communities. Thank you to our associates for their hard work and to our clients and shareholders for their continued confidence in First Horizon.

Lucy, with that, we can now open it up for questions.

Question & Answers

Operator

Thank you, Bryan. [Operator Instructions] The first question today is from Jon Arfstrom of RBC Capital Markets. Your line is now open. Please go ahead.

Jon Arfstrom

Hey, thanks. Good morning.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Good morning, Jon.

Jon Arfstrom

Hey, Bryan, question for you. You touched on some of this, but you seem a little more optimistic on the lending environment and wondering if you could touch a little bit more on the pipelines in C&I and whether or not you’ve seen any impact on pipelines from the macro uncertainty.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Yes, happy to, Jon. The pipelines in C&I continue to be very, very good. And while the short term effects of the disturbance or the trouble in the Middle East has people asking questions, it really has not had a significant downward impact on C&I pipelines at this point. And in fact, we still see what is a continuation of what we saw building in ’25, which is business owners and leaders looking to grow, invest and build.

And so that has been positive. In addition, I mentioned, and I think Hope did as well, that CRE pipelines have continued to build. And as you know, that’s a business for us, that loans originate and fund up over a three-year, four-year, five-year period and then pay off all at once. And we haven’t seen, excuse me, pipelines this strong since the ’22 — ’21, ’22 timeframe when rates were essentially zero.

So those pipelines are building. So we’re very optimistic about the outlook for lending growth over the course of this year. You will see in our results and it’s somewhat evident in the way that we have transformed our balance sheet over the last 18 months. We have continued to focus on profitable growth. We’ve repositioned the business to align around our consolidated strategy, and with that we’re seeing an improvement in the profitability of the lending that we’re doing. We’re focused very much on relationship lending. Things that are not relationship oriented, we’re being very disciplined about.

And so we look at the year and are very optimistic. I said in my closing comments that the market is still very competitive. And without a doubt the markets are still very competitive. Very good loan transactions have a lot of competition for those, and our bankers are doing a very nice job of not only getting our fair share, but maybe a little bit more.

Jon Arfstrom

Okay. That’s helpful. And then maybe one more on lending, I think Hope, usually you handle this one, but on the loans to mortgage companies, you’re — despite the fact it’s been maybe a choppy environment, you’re still up like 35% year-over-year. Do you expect a typical seasonal bounce in warehouse balances? And since it’s a bigger category for you, what — maybe you can size it for us and give us an idea of what we could see in Q2 and Q3?

Hope Dmuchowski — Chief Financial Officer

Thanks, Jon. I will say we do expect to see a seasonal increase in Q2. We’re already starting to see some of that fund up at the end of March and beginning to April. Now whether it’s typical, I can’t say what typical is anymore. Last two years, Jon, have been some of the lowest mortgage origination years in the last 20 years. And I think the way rates have been going the first part of the year, we’re probably going to see a low mortgage origination and a low refinance rate.

But do expect that it will trend consistently with Q1 to Q2 and Q3 of the last two years. We have picked up market share and that has shown and continued to show in our strong loans to mortgage Company balances even at the end of Q4 and Q1. I’ve said before, I think one of the biggest upsides to our guidance is if we saw a refi wave, I think it gets less likely the further that 30-year rate goes up. But that is the back half of the year, I think that’s still a possibility for us, although that’s not built into our outlook today.

Jon Arfstrom

Yeah. Okay. All right, fair enough. Thank you very much. Appreciate it.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead.

Michael Rose — Analyst, Raymond James

Hey, good morning, guys. Thanks for taking my questions. Maybe I’ll just take the other side of the balance sheet from Jon. Just on deposit competition, I noticed that the interest-bearing spot rate was 2.27% versus the full quarter average of 2.28%. Can you just talk to us about deposit competition? It seems like anecdotally over the past month, it’s definitely increased. So just wanted to get your kind of lay of the land and then what we can expect in terms of what you’ve modeled for rate scenarios for the year and what is kind of a more optimal environment for deposit pricing at this point? Thanks.

Hope Dmuchowski — Chief Financial Officer

Thanks for the question. I think this year is shaping up to look a lot like last year in the seasonality of deposit rates. As we expected more rate cuts, people brought in — our competitors brought in their term and their rate guarantee. We’re starting to see that shift to longer guarantees and higher rates for longer in competition. And so we — as you saw our spot rate is still below our average and we’re generally there, I do think that deposit costs will slightly trend up in Q2 and Q3 if we don’t see a rate cut.

Additionally, I mentioned in my expense comments that marketing was down in Q1. We tend to do a lot more new-to-bank acquisitions in Q2. It’s the time that consumers start thinking about moving their checking accounts, savings accounts, they’ve gotten tax refunds. And so I do think with that new-to-bank promotion out there, we’ll see a little bit of uptake and then we’ll walk it back just like we have the last two years.

Michael Rose — Analyst, Raymond James

Okay, great. Thanks, Hope.

Hope Dmuchowski — Chief Financial Officer

And that is in our guidance. Our guidance is including…

Michael Rose — Analyst, Raymond James

Perfect. Really appreciate that. And then obviously there’s a lot of focus just separately on private credit and things like that. Appreciate some of the color that was in the deck. It looks like generally credit appears to be good. So maybe for Tom, anything you’re seeing on the credit front? And then I noticed that you guys didn’t put any commentary on criticizing classified this quarter. Just any sort of updates there. Thanks, guys.

Thomas Hung — Chief Credit Officer

Hey, Michael, good morning. Happy to address those. Overall, I remain pleased with our very consistent credit performance, headlined by the 18 basis points net charge-off, which is slightly below the median of the range. That said, there’s always things that we want to watch carefully. I would say for me in particular, I’m still carefully watching anything that is most closely tied to consumer discretionary spending, especially with recent increases in energy prices that certainly hits discretionary spending.

So sectors like trucking, auto, restaurants, those are things that I want to watch more closely. But to your comment on private credit, that is something that we’re certainly monitoring as well. But I would point out we have very minimal exposure to that segment. In terms of direct exposure to private credit, it’s less than 1% of our loan book. And substantially all of that is backed by either — the end collateral is either tangible assets like real estate inventory or equipment or accounts receivable. And there’s very, very little enterprise value lending exposure.

Michael Rose — Analyst, Raymond James

Very helpful. Thanks for taking my questions. I’ll step back.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you, Michael.

Operator

Thank you. The next question comes from Jared Shaw of Barclays. Your line is now open. Please go ahead.

Jared Shaw — Analyst, Barclays

Hey, good morning.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Good morning.

Hope Dmuchowski — Chief Financial Officer

Good morning.

Jared Shaw — Analyst, Barclays

I think if we could look at the $100 million of that sort of incremental PPNR, what are any of the assumptions behind that for cost savings and/or potentially slower hiring driven by AI implementation? And if there’s nothing including there, is that — yeah, I was just going to say if there’s nothing in there, is AI a positive or a negative to that $100 million?

Hope Dmuchowski — Chief Financial Officer

Yeah, Jared, there is nothing in there about expenses. That is all deepening relationships and about revenue. In my prepared remarks, we talked about 6% more NII year-over-year with 3% balance growth in a decreasing rate environment. So you can see the profitability of the existing relationships at renewal or new-to-bank getting additionally creating more value for us. So there are no expenses. As far as AI, we do have a flat expense outlook excluding countercyclical commissions. We’ve said that, that is coming from the technology investments we’ve made over the years and we continue to make so that we can scale revenue without having to scale the back office. So less about cost saves right now in our outlook and more about able to scale with bankers, invest in new hires, grow our market share without having to add all of that support infrastructure.

Jared Shaw — Analyst, Barclays

Great. Thank you. And then on the capital side, I guess what would cause you to lower that 10.5% target? You did some work on the capital stack this quarter. I guess what could cause you to feel comfortable with lower than 10.5%?

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Yeah, I’ll take that. I think right now we’re comfortable with the 10.5%. As I’ve said in the past, this is something that we talk with our Board continuously about and we will continue to do that. I think given that the near-term uncertainty about what’s happening with respect to oil prices and what that means to inflation and the economy, it’s probably not a bad idea to see a few more cards here.

Overall, we’re very optimistic that the economy is still in a pretty good place that over the next several weeks to months, we’ll start to see some of this uncertainty settle down. And I think at that point, we’ll continue to evaluate whether we bring those ratios down. As we have said, we have a bias. We believe that we can operate the organization on a lower CET1 ratio, a lower CET1 ratio than the 10.5% and over time we will get there.

Jared Shaw — Analyst, Barclays

Great. Thank you.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Sure thing.

Operator

Thank you. The next question comes from Casey Haire of Autonomous. Your line is now open. Please go ahead.

Casey Haire — Analyst, Autonomous

Yeah, great. Thanks. Good morning, guys.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Good morning.

Casey Haire — Analyst, Autonomous

Wanted to revisit the NII outlook. Hope, you mentioned that deposit costs were going to feel some pressure going forward. I was wondering if you could shed some light on loan yields and bond yields given the fixed rate asset repricing benefits and just overall, what does that do for NIM?

Hope Dmuchowski — Chief Financial Officer

Thanks for the question, Casey. On the deposit side, when I said it was a slight tick up, I don’t expect that to put a ton of pressure on NIM or NII. It’s really the mix as you bring new-to-bank in. And so I see that in the low to mid single-digits and that’s manageable for us in our current outlook. As far as bond prices and the outlook there, it’s really hard to predict what’s going to happen. As Bryan mentioned earlier in his comments, we saw a lot of volatility that impacted FHN Financial at the end of March, and April has started off slow. We have a slide in the back of our deck about where the market is for FHN Financial today. And we have it in red and green and all but one factor is in red for them as of today. That does not mean it couldn’t change going into the back half of the year. But we do see some risk there, but we don’t see any risk to our outlook of our guidance on all revenue. So if NII were to come down with rate cuts or we saw some stability, we’d see FHN Financial pickup, maybe some additional refi. And so we feel that we are really balanced in the back half of the year to hit that revenue guide.

Casey Haire — Analyst, Autonomous

Got it. Okay. And then just…

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

I’m trying to — Casey, I’m sorry, this is Bryan. I’m trying to pull up. You asked about fixed asset repricing. I think we have something like $1 billion or so of investment securities, a little more than that, that reprices over the course of this year. And on the fixed rate loan, whether it’s a long term ARM or etc., it’s a little over $5 billion that reprices in 2026. So in total we’ve got about $6 billion to $7 billion of assets that were repriced principally at higher rates.

Casey Haire — Analyst, Autonomous

Yeah. No, I see that on the slide deck on Slide 7. I was just wondering if the asset yields could offset some of the modest deposit pressure that you guys are feeling to keep the NIM stable.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Well, I think clearly the fixed asset repricing will have — fixed rate asset repricing will have some impact. But Hope has alluded to it a couple of different ways. We’re working very profitable — to improve the profitability of the balance sheet. And so there is some offset there as well. And we’ve talked in the past, for example, our market investor CRE, we’ve improved the yield significantly in that business on a year-over-year basis. So we think we have lots of levers that allow us to continue to navigate through the sort of deposit trends that are occurring in the market in the near-term. And as Hope has said, we feel very good about the balance in the balance sheet over the long-term that we can navigate changing interest rate environments with as much or more stability than most.

Casey Haire — Analyst, Autonomous

Great. Just one more on the credit side of things. So the ACL ratio has come down nicely. We got some mix shift and some credit resolution. I know it’s difficult with the CECL modeling, but all else equal, what is a good landing spot for the ACL ratio versus that 1.28% level?

Thomas Hung — Chief Credit Officer

Yeah, it’s hard to say because obviously things evolve on a quarter-to-quarter basis and depending on what happens with loan growth, depending on what happens with great migration and classified resolutions, all of that can change the result quarter-to-quarter. But we feel like we’re very adequately reserved at this current time. At our current ACL, that’s approximately seven times our average net charge-off over the last two years. And so I believe where we’re currently at is a very well reserved decision relative to our very steady net charge-off performance.

Casey Haire — Analyst, Autonomous

Great. Thank you.

Hope Dmuchowski — Chief Financial Officer

Casey, I want to add to that, and I’ve said this in prior quarters, two basis points or three basis points in the CECL model is not material. I mean we’ve gone up — if you look at the last six quarters, we’ve gone down three [Phonetic], one quarter up two [Phonetic], I mean that’s really essentially flat in a coverage with a portfolio that moves as much as ours does.

Operator

Thank you. The next question comes from Bernard Von Gizycki with Deutsche Bank. Your line is now open. Please go ahead.

Bernard Von Gizycki — Analyst, Deutsche Bank

Hi, guys. Good morning. On the $100 million plus PPNR opportunity, you highlighted some progress made since mid-2025 on Slide 15 of the deck. Could you just walk us through these examples on the CRE pricing, the deeper relationships between regional and specialty, the treasury management and wealth management initiatives?

Hope Dmuchowski — Chief Financial Officer

Absolutely. I’ll start with that is in no way a holistic list of all the things. But as we keep getting asked what are some proof points that you can show us? What can you point to? We put a couple on Slide 15. But CRE pricing is one that Bryan has talked a lot about as we’ve been speaking with investors at conferences which is the benefit of having a specialty model and a market-centric model. We have a strong pro-CRE business that is long-tenured bankers and are continuing focusing on exactly what’s happening in the CRE industry across the country by sector, by subsector.

And about a year and a half ago, we brought that specialty to every deal with a market in market banker who is doing a CRE deal. And we’ve been able to see additional fee income come out of that partnership where they were able to get origination fees or unused line fees as well as increased margins as the appetite for CRE in our industry really shrunk over the last three years. So those spreads increased. It’s really the benefit of a market-centric model with a specialty partnership. You bring the best of both to the client and we’ve gotten in addition to the financial benefits, we continue to hear from our clients how much they appreciate that, having somebody who can talk to exactly what’s happening in the industry alongside a banker that knows exactly what’s happening in the market. It’s been a great enhancement for us and we have that in a lot of places. We’ve highlighted CRE, but we have it in franchise finance, ABL, equipment finance. Just that partnership is really paying additional dividends for us and is a big part of our $100 million PPNR opportunity that we’re already realizing.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

This is something that we have built in to our expectations for 2026. And it’s really hard to highlight how much work goes into this. We have hundreds, thousands of bankers that are working on aspects of this every day. And it really comes from the ability that our teams have created for the organization to see with a lot of granularity relationships and understanding the nature of relationships, the interconnectedness of deposit or fee-based services and lending relationships. And those tools have helped us navigate opportunities for bringing new products and capabilities to customer relationships, making sure where we’ve underpriced a spread here or there that we’re asking for appropriate spread on the credit or the treasury service or the wealth management or whatever it happens to be.

And it’s something that is a work in progress. It’s not completed in ’25 or ’26. It will continue, but it’s part of the discipline that we believe that the organization is oriented around which is building long, big term, deep, broad, long-term relationships and creating win-win solutions for our customers that essentially create partnerships that are, as I said, win-win for both sides.

Bernard Von Gizycki — Analyst, Deutsche Bank

Great. Thanks for that color. Just to follow up on loan growth. Obviously you reiterated the expectations for the mid single-digit growth. But just wondering, are contributors changing? Maybe stronger C&I than originally expected, maybe a bit less CRE. You noted the headwinds, but pipelines remain strong. Just thoughts on if CRE will still be a positive contributor for loan growth this year.

Thomas Hung — Chief Credit Officer

Yeah, I’m happy to tackle that one. I’ll start on the C&I side where you saw very strong continued momentum in Q1. I think what I’m most pleased about in those results is how evenly spread that is between both our regional bank regions as well as our specialty lines of businesses. We saw momentum on both sides. On the CRE side, we’ve talked about the headwinds in terms of project starts over the last several years going into the perm market. We started to really see that pace of our payoffs decelerate. And we believe with a very, very strong pipeline, especially now compared to a year ago, we should start to see some very good net growth on the CRE side later this year as well. So overall, there’s very good momentum up and down the balance sheet.

Bernard Von Gizycki — Analyst, Deutsche Bank

Great. Thank you.

Operator

Thank you. The next question comes from Chris McGratty of KBW. Your line is now open. Please go ahead.

Andrew Leischner

Hey, how’s it going? This is Andrew Leischner on for Chris McGratty.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Hey, Andrew.

Andrew Leischner

I know you touched on it a little bit earlier on. Hey, how’s it going? I know you touched on it a little bit on Casey’s question earlier, but just on the 3% to 7% revenue guide, can you maybe walk us through the scenarios or assumptions that would get us to the higher end or lower end of that range? Thanks.

Hope Dmuchowski — Chief Financial Officer

As I said, I think we’re pretty balanced. The question is not how do we get to the higher or lower end of the range, does it come from fee income and countercyclicals or does it come from NII and higher loan growth? What I have mentioned is to get to the high end or exceed, not to say it’s our only, but it’s really, we have no pickup in mortgage refi built into this outlook.

As I said earlier, I don’t expect it in the near-term as 30-year rates keep moving up and there’s uncertainty of the consumer. But that’s the one item not built in here. But we’re 3% — we’re starting the year with 3% loan growth year-over-year and 6.5% revenue growth year-over-year. So we have a strong start to that momentum.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

I think the other driver is likely to be an acceleration of economic growth. And, excuse me, to the extent that we look at the economy today, we feel like we’re in a pretty good place. The economy is growing pretty steadily, but it’s probably in that 2.5% to 3% area. And I would say given what we know today, there’s probably greater downside risk than there is upside opportunity.

If that gets resolved and the pace of growth in the economy picks up, loan growth will naturally pick up and we could get to the higher end of that range. So it’s really going to be a combination of how interest rates play out in connection with some of our businesses and then more importantly, what does that mean in terms of economic growth in the economy overall.

Andrew Leischner

Great. Thank you. And just on the expense outlook, annualizing this quarter gets you a little lower than flat expenses. So outside of the lower marketing in the quarter, is this a good run rate from here or were there some other items that were lower than usual? I know you completed that technology project reference in the release, but any color here would be great. Thanks.

Hope Dmuchowski — Chief Financial Officer

Yeah, there’ll be some movement throughout the quarters as it relates to marketing spend. We always have an issue with the way we do our income statement, where marketing spend hits first and then the cash offers hits another. And so you’ll see some volatility there. But the other one is technology projects. They can vary quarter-to-quarter. At the end of the year, we had a lot of projects complete and they went from the expense part of their project to capitalization, which is more stable. But I do think to your point, it’s a good glide path, and on average, we do expect to be flat year-over-year with some variability quarter-to-quarter.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

One of the things that I’m excited about on the expense side is we’ve had very good success in hiring new revenue producers. And if you look at just the stream of press releases over the last several weeks, you’ll see that we’re having very good success recruiting bankers all across our franchise. And I think the point I’m really trying to make is not only are we bringing good people into the organization, we’re controlling cost while still continuing to invest in growth and driving the business forward. So I think that combination is very positive for the long-term.

Andrew Leischner

Great. Thank you so much for the color.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Thank you. And the next question comes from Ben Gerlinger of Citi. Your line is now open. Please go ahead.

Ben Gerlinger — Analyst, Citi

Hi, good morning.

Hope Dmuchowski — Chief Financial Officer

Good morning.

Ben Gerlinger — Analyst, Citi

I know you talked through CET1 and the appetite, we could potentially go lower, but as of now, it’s 10.5%. And then kind of with the outlook for loan pipelines, and sounds pretty robust with that respect. When we look at the seasonality component, like your balance sheet balloons a little bit with mortgage. I get that mortgage is a little bit soft, but like how should we think about buybacks over the next couple quarters, given you’re fairly close to the 10.5%? Is it more opportunistic or because the — for the capital needs to go to growth, but how do we just think about the next couple quarters here?

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Yeah, we will be opportunistic as we always are. And we have said that to the extent that mortgage warehouse lending pushes down on a temporary basis, our CET1 ratio, we are not uncomfortable with that. Our mortgage warehouse lending business has exceptionally low credit losses historically. We see it as more of an operational risk and our team does, I think a very good job of controlling risk in that business. So to the extent that, that pushes us down a little bit here and there, that does not cause us concern in the near-term. So against that backdrop, we will continue to be opportunistic to take the excess capital that we believe we have and that we generate and use that in share repurchases or repatriation of capital to our shareholders.

Thomas Hung — Chief Credit Officer

Yeah. And just to add on to Bryan’s comments, it’s noted in our presentation over the last 10 years, our mortgage warehouse business has averaged about one basis points annual net charge-offs.

Ben Gerlinger — Analyst, Citi

Yeah, no, that’s great. I wasn’t worried about the credit components more so just the usage of capital over the next. But that was a great answer. Appreciate the time guys. That’s all I had.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thanks, Ben.

Operator

Thank you. The next question comes from Timur Braziler of UBS. Your line is now open. Please go ahead.

Timur Braziler — Analyst, UBS

Hi, good morning.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Good morning.

Timur Braziler — Analyst, UBS

Looking at the expense guide relative to revenue, the revenue — the guide is still pretty wide in range versus a pretty tight expectation on expenses. I’m just wondering how agnostic the expense base is towards the different ranges of the revenue guide and kind of what’s embedded as the baseline now for the flat year-on-year expense.

Hope Dmuchowski — Chief Financial Officer

Yeah, it is agnostic to the revenue guide with the exception of the countercyclical businesses. If we hit the higher end of the range and more of it comes year-over-year from the countercyclical businesses, you can assume a 60% commission on that amount. But what’s built in is flat countercyclical revenue year-over-year to that flat guidance. But I don’t see — Bryan talked about new hires. New hires were built into our expense guide. Branches were built into our new expense guide. A consolidation into a new hub in Charlotte’s in our expense guide. All of the investments are already in there and we believe it’s flat.

You talked about the range of the guide, every CFO will tell you it’s easier to control expenses than it is revenue. And so the range for the guide is really the uncertainty of the economy that we’re looking at right now. Bryan mentioned earlier, could we see the economy start to rebound with consumer confidence and more spending and loan growth? That is what’s driving our large range, not our internal understanding of where we think our businesses are going. It’s just really hard right now, Timur, as you know, to figure out what type of economy we’re going to be lending into and what’s going to happen in the wealth business over the next three quarters.

Timur Braziler — Analyst, UBS

Great. Thanks. And then as a follow-up, there’s some increased conjecture maybe this week surrounding M&A, all the volatility that’s going on in the market right now. Could you just give us a reminder on both sides of M&A kind of your updated expense here?

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Yeah, nothing has changed with respect to M&A. As we said, our number one priority is continuing to focus on the profitability of our business and driving the benefits that we can realize by investing in our core franchise. And we have said that opportunistically we had the opportunity, we felt better about our ability to do fill in our existing footprint. We have, as always, taken an approach that we’re going to maximize return on capital for our shareholders and we’re going to evaluate any opportunity that presents itself. But nothing has changed in terms of our thinking around M&A.

Timur Braziler — Analyst, UBS

Great. Thank you.

Operator

Thank you. The next question comes from Anthony Elian of JPMorgan. Your line is now open. Please go ahead.

Anthony Elian — Analyst, JPMorgan

Hi, everyone. Hope, to put a finer point on NIM. Last quarter you pointed to a range in the mid-3.4s [Phonetic], but you’ve clearly outperformed that for a couple quarters. Now just given the earlier comments on loan yields, deposit costs picking up slightly, how are you thinking about NIM here? Thank you.

Hope Dmuchowski — Chief Financial Officer

Yeah. The mid-4% [Phonetic] comment was about stabilization when we saw a flat interest rate environment, more consistent spreads. Near-term, we do expect to be in the high 3.4s [Phonetic] within a few basis points of where we’re at right now.

Anthony Elian — Analyst, JPMorgan

Thank you. And then on capital, given the recent proposals, have you quantified any of the estimated impacts or benefits you’d see from the recent proposals? Thank you.

Hope Dmuchowski — Chief Financial Officer

Thanks, Anthony. We have calculated it and every consultant out there has sent us a deck and wants to meet with us on how to optimize it. It’s really clear that it is positive for everybody. It will definitely be a pickup for us, especially in some of the proposals for mortgage, some of the proposals for our fixed income business inventory. But we have not put a fine pen to say that this is exactly what it is. There’s still a lot of uncertainties out there in the model as well as how do we react to some of those, how do you change term of a loan, for example, gives you different capital treatment, but net positive for sure.

Anthony Elian — Analyst, JPMorgan

Thank you.

Operator

Thank you. The next question comes from Christopher Marinac of Brean Capital Research. Your line is now open. Please go ahead.

Christopher Marinac — Analyst, Brean Capital Research

Thanks. Good morning. Tom, just wanted to ask about the reserve as it pertains to both mortgage warehouse and any other NDFI. Should we see that grow over time or how do you think about that?

Thomas Hung — Chief Credit Officer

Yeah. Mortgage warehouse and NDFI is all part of our A triple and ACL reserves for the C&I business. I don’t have it broken in front of me in terms of bispecific lines of business. But overall as you saw, we did add a little bit to our C&I reserves this quarter. That’s more a reflection of some overall economic uncertainty around the conflict in the Middle East as well as what is that — how that is impacting discretionary consumer spend. Overall, I would say where — as I mentioned earlier, I believe we’re well reserved from both the C&I basis as well as a overall ACL basis.

Specific to NDFI, I think what I would point out is — and maybe helpful to break down the components a bit, from the call report, you’ll see we have a total of $8.6 billion of total NDFI. However, from there about 55% is the mortgage warehouse business that we talked about with very low charge-offs and very short tenure with an average dwell of under 20 days. And so of the remaining $3.9 billion of non-mortgage warehouse NDFI, about a third of that is categories that are NDFI in the call report that are really more akin to traditional C&I structuring and risk. And so therefore what’s left, the remaining two-thirds is really only about 4% of our overall loan book.

And the performance in that business, there’s certainly some pockets with some elevated CNCs we have to watch, as you would expect. But the overall performance of that remaining book is actually not too dissimilar from our overall C&I book. In terms of the NPLs are actually slightly lower relative to our overall books. Net charge-offs are slightly higher, but it’s all very close to being in line. And so from my position, I don’t think there’s any specific reason to have outsized reserves tied to our NDFI book.

Hope Dmuchowski — Chief Financial Officer

On your comment about mortgage warehouse and NDFI, I want to point out for us the way we do mortgage warehouse, we don’t really consider it NDFI, although the call report does. We hold the underlying collateral. We take each note at closing. We talked — Tom talked early in his prepared remarks that we had one basis point of charge-off in the last 10 plus years. That comes down to the operational risk.

Should the company that we’re lending to have an issue and can no longer be in business, we have the notes, we’ve worked through that and we then pledge them and sell them or put them on our balance sheet. And so for us NDFI is an operational risk. For the fraud piece of it, we’ve seen collateral double pledged. We don’t have that situation. We actually maintain the notes until they’re sold. And that’s something that is different than how some others do mortgage warehouse in the industry.

Thomas Hung — Chief Credit Officer

And just to make sure we’re clear, the one basis point is the average annual charge-offs in that business.

Christopher Marinac — Analyst, Brean Capital Research

Great. Thanks, Hope, and thank you, Tom for that additional detail. That’s very helpful. Tom, just to clarify, so you mentioned that there are some charge-offs in the other NDFI that smaller component. Are these kind of normal charge-offs or have these changed at all in recent quarters?

Thomas Hung — Chief Credit Officer

I would say it’s relatively normal. I mentioned it’s slightly higher than our overall net charge-off rate, but it’s not anything alarming. I would also point out I mentioned that…

Christopher Marinac — Analyst, Brean Capital Research

Great. Thank you, both.

Thomas Hung — Chief Credit Officer

Okay.

Operator

The next question comes from David Chiaverini of Jefferies. Your line is now open. Please go ahead.

Max Asteris

Hi, good morning. Max Asteris on for David Chiaverini. Just a quick question around capital markets. Given recent yield curve volatility, I wanted your thoughts specifically around fixed income, and how sensitive is the fixed income trading desk to the current shifting expectations around Fed easing?

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Yeah, this is Bryan. The business has had its ups and downs and volatility in interest rates over the longer term is good for the business and short-term it can be difficult. And the uncertainty in the way rates have been moving have created some volatility from week to week. On the whole though, we’re pretty encouraged by the positioning of the business. Our ADR for the quarter was down slightly from the fourth quarter, but up significantly from a year ago. So all in all, we look at the business as a very strong contributor and are optimistic — our outlook is optimistic for the foreseeable future, recognizing that there are going to be potential events that can push rates up or bring rates down rapidly. But we think we’re well positioned and in a good place to benefit from that volatility over time.

Max Asteris

Great. Thank you.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

The next question comes from John Pancari of Evercore. Your line is now open. Please go ahead.

Girard Sweeney

Hi, this is Girard Sweeney on for John. So you highlighted that this is the third straight quarter, 15% plus ROTCE. Considering 15% target, how should we think about ROTCE trajectory going forward? Do you see a path closer to high teens or is maintaining the current level more your priority? And if you were to get more to a high teens level, maybe what are the three or a few steps that would get you there? Thank you.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Yeah, this is Bryan. We’re making progress and Hope pointed out our ROTCE is up a couple hundred basis points from a year ago. And we set 15% plus as a target. We did not set it as a destination. So we work to continue to build ROTCEs. We think we will continue to make progress. And to the extent that you combine three or four things, two or three things, depending on how you count them, one, the improved profitability that we’re driving with our existing balance sheet, two, the ability to leverage our balance sheet either through capital return or growth in the balance sheet and the combination thereof of the regulatory guidance and bringing CET1 ratios down, we think we have the ability to push those ROTCEs up over time. I’m not going to try to put a fine point on it today. We’re confident with the progress that we’re making. We’re focused on driving those returns higher. And I feel good about the work the organization is achieving every single day in that regard.

Girard Sweeney

Great. Thank you. That makes a lot of sense. And maybe going back to the prior question on the fixed income business, is there an ADR range, you’d say, embedded in your revenue guidance? I know there’s a countercyclical side of it, but just how to size up from a modeling standpoint the rest of the year?

Hope Dmuchowski — Chief Financial Officer

Yeah. There are multiple ranges embedded in our guidance, because as I’ve said before, we trade NII for fee income or mortgage warehouse balances in a decreasing rate environment. And so we do not have a single outlook to hit our guidance, regardless of whether rates increase, stay flat or decrease, you’ll just see the revenue come from different places.

Girard Sweeney

All right. Understood. Thank you.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Thank you. We have no further questions at this time, so I’d like to hand back to Bryan for closing remarks.

Bryan Jordan — Chairman of the Board, President and Chief Executive Officer

Thank you, Lucy. Thank you all for joining our call this morning. Please reach out if you have any further questions. We appreciate your interest. I hope everyone has a wonderful day.

Operator

[Operator Closing Remarks]