First Horizon Corporation (FHN) Q4 2025 Earnings Call Transcript

First Horizon Corporation (NYSE: FHN) Q4 2025 Earnings Call dated Jan. 15, 2026

Corporate Participants:

Tyler Craft — Head of Investor Relations

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

Hope Dmuchowski — Chief Financial Officer

Thomas Hung — Senior Executive Vice President and Chief Credit Officer

Analysts:

Casey Haire — Analyst

Ryan Nash — Analyst

John Pancari — Analyst

Bernard von-Gizycki — Analyst

Jared Shaw — Analyst

David Chiaverini — Analyst

Peter Winter — Analyst

Michael Rose — Analyst

Jon Arfstrom — Analyst

Andrew Leischner — Analyst

Christopher Marinac — Analyst

Janet Lee — Analyst

Anthony Elian — Analyst

Timur Braziler — Analyst

Presentation:

Operator

Hello, everyone, and thank you for joining the First Horizon Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I’ll be coordinating your 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 fourth quarter 2025 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.firsthorizons.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 two 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 other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, page three 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 & Chief Executive Officer

Thank you, Tyler. Good morning, everyone. Thank you for joining us. In 2025, we showed significant progress in delivering value for our clients, associates and shareholders. We delivered increased pre-provision net revenue and return on tangible common equity, hitting 15% in the back half of 2025. Loan and deposit trends were solid and we improved balance sheet profitability through a better loan mix and pricing, disciplined control of deposit costs and tighter integration of deposits within our client relationships.

One example driving improved profitability is the year-over-year improvement of yields on market-based commercial real-estate lending for new or 2025 originations by 34 basis points. In 2025, we also returned just under $900 million of capital and stock repurchases and just over $300 million in dividends. With more clarity around economic conditions and regulatory trends, we believe we can continue to return additional capital to our shareholders while continuing to invest in growth opportunities. As you will see in our slide presentation, we are optimistic about our ability to improve profitability and continue to grow earnings in 2026.

I’ll now hand the call over to Hope to walk-through the results of the fourth quarter in more detail and 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. We ended the year with a strong fourth quarter that includes earnings per share of $0.52, net interest margin of 3.51% and 2% loan growth. Starting on slide eight, we walk-through some of the drivers of our approximately $2 million of net interest income growth as well as our net interest margin performance. Our margin compressed by 4 basis points. But excluding the impact of the Main Street lending program accretion discussed last quarter, NIM expanded by 2 basis points, even with our slightly asset-sensitive balance sheet. The largest benefit to both NII and margin was deposit pricing, as our average interest-bearing costs declined by 25 basis points. Additionally, strong growth in loans to mortgage companies added to NII.

On slide nine, we cover details around our deposit performance in the quarter. Period-end balances increased by $2 billion compared to prior quarter. The average rate paid on interest-bearing deposits decreased to 2.53%, coming down from the third quarter average of 2.78%. We have maintained a cumulative deposit beta of 64% since rates started to fall September 2024. Our interest-bearing spot rate ended the quarter at 2.34. On slide 10, we cover our quarterly loan growth. Period-end loans increased $1.1 billion or 2% from the prior quarter. Our largest increase came from our loans to mortgage companies, which increased $776 million quarter-over-quarter. While fourth quarter is not traditionally a high watermark for this business, we saw a pickup in the refinance market, which resulted in approximately one-third of activity from refinances, up from approximately 25% in the recent quarters.

We also saw excellent growth across our footprint in the rest of our C&I portfolio with period-end balances increasing by $727 million from prior quarter as origination volume increased quarter-over-quarter. Within the CRE portfolio, the pace of paydown slowed as the decline of period-end balances improved versus the prior quarters with a $111 million reduction. Additionally, we saw a slight increase to commitments in our CRE portfolio during the quarter, providing momentum entering 2026. Commercial loan spreads remain consistent, generally mid 100s to upper 200 basis points.

Turning to slide 11. We detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation. The largest increase for fee income comes from our service charges and fee lines, which is largely driven by $4.4 million in income related to elevated activity in our equipment finance lease businesses. On slide 12, we cover adjusted expenses that excluding deferred compensation increased $4 million from prior quarter. Personnel expenses, excluding deferred compensation increased by $12 million from last quarter, driven by $8 million in incentives and commissions, which primarily consisted of annual adjustments to bonuses impact by hitting the high-end of our revenue targets for the year.

Outside services increased by $16 million, which includes project costs for some technology and product initiatives and increased advertising expenses in the quarter. Our non-interest expense declined primarily related to the foundation contribution discussed last quarter as well as normal fluctuations in customer promotion costs and marketing campaigns earlier in the year. Turning to credit on slide 13. Net charge-offs increased by $4 million to $30 million. Our net charge-off ratio of 19 basis points is in-line with our expectation and recent performance. We recorded no provision for credit losses in the fourth quarter and our ACL to loan ratio declined to 1.31 on broad improvement across our commercial portfolio and payoffs of non-pass credits.

On slide 14, we ended the quarter with CET1 of 10.64% as buyback activity and strong loan growth, which included high loan to mortgage company growth lowered our period-end CET1 levels. During the quarter, we bought back just under $335 million of common shares, bringing our full-year total to $894 million. We also announced a new repurchase program of $1.2 billion at the end of October and we currently have just under $1 billion of authorization remaining. On slide 15, we walk-through the objectives and metrics within our current 2026 outlook. We once again expect year-over-year PPNR growth with mid-single-digit balance sheet growth and positive operating leverage.

Our total revenue expectations range from 3% to 7% growth year-over-year, which accounts for a variety of interest-rate and business mix scenarios. As we have mentioned previously, our expense outlook remains flattish with the exception of incremental incentive expenses associated with higher countercyclical revenue. Continued improvements to market conditions for our fixed-income, consumer mortgage and loans to mortgage company lines of businesses could drive higher revenues and associated personnel expenses.

We expect to achieve this while still making key investments in our businesses, including technology, personnel additions and new branches. Our net charge-off expectation of 15 basis points to 25 basis points reflects our continued confidence in our underwriting standards and credit processes. We expect taxes to be between 21% to 23% similar to 2025. Lastly, our near-term CET1 target remains at 10.75 with the level fluctuating approximately between 10.5 and 10.75 with loan growth throughout the year. We will continue to have conversations with our Board about potential timing for lowering that target further in-line with our intermediate-term expectations of 10% to 10.5%.

I’ll wrap-up as we turn to slide 16. I am extremely pleased with the execution of our teams in the fourth quarter and throughout all of 2025. We once again operate at 15% adjust adjusted ROCE this quarter and our goal continues to be sustaining and exceeding this level. We are continually managing capital and credit to ensure that we maximize returns for shareholders as displayed this quarter with capital deployed into both loan growth and share buybacks. Our teams are focused on execution and delivering on our profitability objectives, including the more than $100 million revenue-driven incremental PPNR that we have discussed in the past. We made early progress on this in 2025 and expect the impact to continue to grow in 2026 and 2027.

With that, I will give it back to Bryan.

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

Thank you, Hope. I’m proud of the progress we made in 2025 across many fronts. During the year, we distilled our strategic plan into a five-page framework to provide clarity for all of our associates about how we differentiate in the marketplace and create broad, deep long-lasting client relationships. I believe this alignment will continue to help drive consistent execution across our organization, resulting in exceptional experiences and outcomes for our clients and our shareholders. As we look into 2026, our priorities are clear; serve our clients well, grow profitable relationships and deliver on our financial objectives. We will capitalize on growing client confidence about the economy with continued loan growth. We see positive signs for growth in our current pipelines, especially in our commercial lending areas.

I’m confident that our diverse business model and robust footprint position us to meet our revenue growth targets through a variety of economic scenarios. As we stated in our 2026 outlook, we also remain focused on expense discipline and efficiency, while also continuing to invest in technology and tools that make our associates more effective and deliver greater value for our customers. We talked in 2025 about our $100 million-plus PPNR improvement opportunity. We made initial progress in 2025 by improving profitability of the balance sheet. We still see $100 million in additional opportunity and expect to make significant progress on that in 2026 and 2027. This profitability will be driven by deepening client relationships and products like treasury management and wealth management, leveraging our banker expertise to ensure clients have the right products for their needs, ensuring our pricing reflects the value we deliver to clients and ensuring we maximize the value of our footprint with our talent and distribution models.

First Horizon has a lot of momentum going into 2026, and I’m excited to see our associates capitalize on those opportunities ahead. Our team put forth a great deal of effort in 2025. Thank you to our associates for their work this past year and to our clients and our shareholders for their continued confidence in our company.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from Casey Haire of Autonomous. Your line is now open. Please go-ahead.

Casey Haire

Great. Thanks. Good morning, everyone. I wanted to start on the revenue outlook. The $3 million to $7 million, that’s about $135 million of revenues. I know it’s tricky, but if you could just take us through your base case and what are some of the big wildcards to think about so we can make our assumptions on tightening up that revenue outlook.

Hope Dmuchowski

Happy New Year, Casey. Thank you for that question. Our base case kind of middle of the range is the current forward curve. So as you think about looking at the low and high-end range, look, we’ve got to think about where rates go, how quickly we might see rate drops versus the current forward curve and then also loan growth. And so as we said, we have mid-single-digit loan growth in here. And so if we were able to exceed that, you’d be at the higher range. And of course, our countercyclical.

The Wall Street Journal just reported this morning that December home buying was strong. I made a comment in my prepared remarks that we saw refinance pickup for the first time in multiple quarters. So as we start to see some of those countercyclicals pick-up and we hit our loan growth targets or higher, we end-up on the higher-end of that range very good.

Casey Haire

Got it. And then just on the expense front, I know you guys are kind of reiterating your flat outlook for this year, but I guess trying to understand what the — obviously, I don’t think that would be sustainable going-forward. I guess what would — what would the expense growth be had you not had these past years of heavy tech investment and digital infrastructure investment? Like I’m just trying to get a sense of what would be — where does the expense growth normalize to going forward after this flat year in ’26?

Hope Dmuchowski

When Bryan and I sit down and talk with our Board about where we want to go in coming years, we always start with we want positive PPNR. And we really start with a base case of expenses being in-line with inflation. You have wage inflation, you have contract inflation. So we start with that. And then to your point, we did have some things that were kind of multiyear investments that are running down. But think about our normal growth in that inflationary area, which would be 2.5% to 3% currently.

Casey Haire

Great. Thank you.

Operator

Thank you. The next question comes from Ryan Nash of Goldman Sachs. Your line is now open. Please go-ahead.

Ryan Nash

Hey, good morning, everyone.

Hope Dmuchowski

Good morning.

Ryan Nash

I hope you mentioned embedded in your revenue growth expectations is mid-single-digit loan growth. Maybe just unpack that and talk about some of the key drivers across the products. How are you thinking about the inflection of commercial real-estate, what’s baked-in for loans to mortgage companies and obviously any other areas of growth in the broader C&I area? Thank you.

Hope Dmuchowski

I’ll take those one at a time, Ryan, and Happy New Year. First, as we look to mortgage warehouse, we are expecting it to pick-up. We had — if you look at our trend page, you see it’s the highest quarter we’ve had in five quarters. Seasonally Q4 pays down and we didn’t see that. And with a pickup in refi, we think that we will — our base-case assumes that picks up in a similar consecutive fashion. When we get to the higher side of our guidance, obviously, you’re looking at a double-digit mortgage warehouse growth in the lower-end of our guidance would be flat or lower than this year. C&I, we have great momentum coming into the year. We talked on our last earnings call about being one of our highest quarters for new originations. Q4 had additional strong originations. So we think C&I has hit that influx point. We’re going to continue to see growth in 2026.

CRE started to stabilize this quarter. We’ve seen good new production, but we do a lot of large construction CRE. So it takes time for that to fund up. We’ve always had that spring-loaded balance sheet, Ryan. So I do think it will stay stabilized and how quickly we can grow is how quickly our customers can get their projects running, get the supplies they need and really start to hit that stride in the CRE market that’s been slowed down the last couple of years?

Ryan Nash

Got it. And maybe as a follow-up, you know, given the expectation for mid-single-digit loan growth, I’m assuming you’re expecting some decent deposit growth. Can you maybe just talk a little bit about deposit growth expectations, what you see as the key drivers? And in a better loan growth environment, do you think you could sustain this 64% beta for the remainder of the rate easing cycle? Thank you.

Hope Dmuchowski

Loan growth is always higher in our targets than our — loan growth is always lower than our deposit growth. So the target that we give to our businesses is for that not to be offset and create a higher loan-to-deposit ratio. With that, we have a lot of initiatives that we’ve done in the past 12 to 18 months, primarily our new treasury management system that an additional products that we have delivered in the second-half of the year that allows us to deepen relationships with existing clients and also go-to-market with clients that we maybe didn’t have everything they needed for their business previously. We’ve seen great momentum in treasury management in the back-half of the year.

Also, we’ve mentioned before, we’ve hired a new head of consumer. We had — you see our advertising costs were slightly up and our cash payments and other non-interest expense were up or have been up in the second-half of the year. We’re seeing great momentum with our new-to-bank offers sustaining and deepening relationships in that space. We’re opening new branches this year, and I think there’s a lot of upside opportunity in our consumer franchise. Your comments about deposit costs, I would say the number one thing that concerns me there outside of competition, as we always talk about is what happens with the Fed’s balance sheet. There’s some congressional testimony about shrinking the Fed’s balance sheet further. And so I really think it’s a macroeconomic question as to what is the liquidity in the system in the coming year that will drive deposit prices much more than competition right now where I’m sitting.

Bryan, I don’t know what you’d add to that, but there’s a lot of uncertainty right now.

Bryan Jordan

Well, I think you hit the key point. We do have opportunity in treasury management penetration. We have a very strong, stable base there and our system is extraordinarily competitive and we’re making very good progress in terms of working with customers to increase that penetration. I think the opportunities across our footprint to continue to expand our retail consumer banking model, as Hope pointed out, are very positive. And deposit betas, we’re going to manage within the context of the market, we’re going to be competitive. We think that the Fed is going to either contract or expand its balance sheet, competitors are going to do this, that or the other thing. And we’re going to pay attention at a very granular level and be competitive in the marketplace and grow the business and do it in a way that is thoughtful and built around long-term relationships and partnerships. And I think we’re well-positioned for that.

Ryan Nash

Thanks for all the color.

Bryan Jordan

Thank you.

Operator

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

John Pancari

Good morning. I wanted to see if within your revenue guide, if you could possibly help us unpack it across how you’re thinking about net interest income trajectory versus the fee side. I mean on the net interest income side, it looks like you grew net interest income about 4% in 2025. It looks like it may be a somewhat slower pace in ’26, just maybe given less margin upside. But I want to see if you could maybe help us frame it. Is it low-single digit, that’s reasonable or mid-single for NII? And then as you look at fees, if you could just give us a little bit more color on the ADR trends that are — that you’re seeing here and how that could play-out in the cap market side and how that influences your fee growth expectations?

Hope Dmuchowski

John, thanks for the question. On fee income, obviously, the largest variable is, as I mentioned earlier, mortgage refinance, where we don’t put something on our balance sheet, we do originations that we sell. So if we get that gain on sale back up to what it was two, three years ago, we saw more normalized resale activity. FHN Financial had a very strong second-half of the year. If you look at the deck and you look at the fourth quarter ADR, we had mentioned that we thought 3Q may be an inflection point. And in the beginning of Q4, we were starting to see that come back down and it’s pretty flat quarter-over-quarter. So I think as you think about fee income, think about the core line items growing consistently with this year, but the upside being both gain on sale for mortgage and refinance opportunity as well as FHN Financial upside.

On the NII, as Bryan mentioned earlier and I did as well, deposits are hard to predict exactly where we’re going to land on deposit betas this year. I think that could have a big swing on that. And then loan growth, we’ve had really low loan growth in our industry for two or three years now and there is a pent-up demand out there. So I believe we can get certainty on rates, we can get certainty on the economic environment. We’re going to see that pick-up for our industry. What I can’t handicap right now, John, is that earlier in the first-half of the year or the second-half of the year. And as you know average balance matters for NII more than that quarter-over-quarter. But I feel really strongly that we are well within that range. You can run a set of scenarios and we will be within that revenue guide regardless of what happens in the macroeconomic environment this year.

Bryan Jordan

Hey, John, this is Bryan. I’ll add to Hope’s comment. We’re very intentional in not breaking apart the revenue projection in the net interest income and fee income simply because that we have a very well-balanced business model and that we have the countercyclical businesses. So we have businesses that will pick-up if rates move down significantly. We have businesses that will do very well if rates move-up and the two balance each other out. And so when we build-out a model looking at 2026 or 2027 and beyond, we start with the premise that all models are wrong, some are useful. And so we look at it in the context of we feel-good about the balance in our business and that if you push down here, this will pop-up. But at the end-of-the day, we feel confident in our ability to deliver revenue growth within the range that Hope has highlighted for you.

John Pancari

Got it. All right. Thanks, Bryan. Thanks. Hope, I appreciate that. And then separately, Bryan, I guess if we could just go to go to M&A. Just wanted to see if you can get some your updated thoughts around potential whole bank M&A. A lot of attention, obviously, shift in your comments last quarter. How are you thinking about the decision to potentially step in here and consider an acquisition, A, given the potential that the regulatory window could ultimately close and does that influence you? And then the backdrop of deals accelerating, but most importantly, what it means for you in terms of if something compelling financially or strategically comes up. Thanks.

Bryan Jordan

Yeah. Thanks, John. One, I don’t worry about the regulatory window, first and foremost. I think that during the duration of the Trump administration, you’re likely to see the regulatory window open, your regulatory infrastructure is in place now and they have multi-year appointments. So I don’t worry about that. When it comes to thinking about our business and preparedness, I think as I highlighted in the third quarter call, we have the ability to integrate now, but our priorities are focused on the things that we’ve described in our prepared comments, which is penetrating our customer-base, delivering on this the strategic document that we have laid out for our organization, driving the incremental $100 million of potential PPNR growth. And in that context, if we have the opportunity to fill in our branch franchise or deposit base by doing something small, we would consider it. But I would tell you, like I did 90 days ago roughly, that’s not a priority for us. Our priority is delivering higher returns, increased profitability and leveraging the franchise and the footprint that we have.

John Pancari

Got it. Thanks, Bryan.

Bryan Jordan

Yeah, thank you.

Operator

The next question comes from Bernard von-Gizycki from Deutsche Bank. Your line is now open. Please go-ahead.

Bernard von-Gizycki

Hi guys, good morning. So you have a 15%-plus sustainable ROCE target over the near-term. You hit the 15% mark the past two quarters. Are we at that sustainable 15% now and moving to the plus part of that? Or is there a timeframe like the end-of-the year, you feel that you can declare you hit the 15% in a sustainable manner?

Hope Dmuchowski

Bernard, good morning. Welcome. I think we’ve hit that sustained number on a go-forward basis. It doesn’t mean a single quarter couldn’t dip under that. I talked in my prepared remarks about how CET1 could come down lower quarter-to-quarter as we look at loan growth. But on average, I do think we’ve hit that inflection point where we can deliver in the 15%-plus percent proxy target ongoing. But that’s not a every quarter number, I would say is an average in the near-term. Longer-term, that will be the minimum but we’ve had a lot of uncertainty in the macroeconomic and a lot of things at play right now that could slightly dip us underneath that in 2026.

Bryan Jordan

Yeah. I would add that you — the accounting around AOCI and things like that can move it intra-quarter in a quarter or two, but we feel very good about the sustainable nature of the progress that we’ve made over 2024 and 2025 in terms of proving profitability. And so I think we are at a sustainable level. It may fluctuate up a little bit or down a little bit, but at the end of the day, I think what we’ve delivered and improved profitability is sustainable. And as we have in the past several quarters, the opportunity to return capital and manage our capital levels in line with peers is an opportunity that would further enhance that. So we’ve made good progress and I think we’re in a good place to increase that profitability as we go-forward.

Bernard von-Gizycki

Thank you for that. Maybe just on credit. So I know in the release, you noted the 11% sequential reduction in criticized and classified during the quarter, the resulting zero provision and the $30 million reserve release. How are you thinking about your reserve build from here just given expectations on the path of criticized and classified the expected 15 basis points to 25 basis points of net charge-offs as well as just expectations for mid-single-digit loan growth for the year?

Thomas Hung

Yeah. Hey, good morning. This is Hung Tom. I’m happy to address that question for you. Overall, we’ve had a very strong momentum throughout all of 2025 in terms of working through our non-pass book. And as you noted in the fourth quarter alone, we had over $700 million of our non-pass resolutions and there’s a good mix of both payoffs and upgrades. On the whole year, that number added up to $2.2 billion. And so with the strong momentum we’ve had in those non-pass resolutions, that’s why we have been able to have the other reserve releases we’ve had in the last couple of quarters.

In terms of looking ahead, a lot of other factors will impact on what ultimately our reserves are, including broader economic outlook, the amount of loan growth we have and also the mix of the businesses. What I’m happy about is the momentum that we have in terms of how we’ve continued to be able to work down our non-pass book while maintaining very strong net charge-off performance. In terms of forward outlook on reserves, like I said, there’s a number of factors that could change that. So it’s harder to say.

Bryan Jordan

Bernand, this is something Bryan. I’ll add to Tom. CECL model, it implies an awful lot of science, but there’s a tremendous amount more art involved in it in the assumptions that are made about the economic scenarios. And if you step back from it and you look at our reserve levels today, we have something in the nature of six to seven years of reserves set-aside at the current run-rate. So we believe that we’re conservatively positioned. We try to take a balanced view of the economy and we don’t look at it as all up or all down. But I think given the improvement that we’ve seen in C&C and the trends in the balance sheet, we think we’re in a very good position for the reserve levels that we have. And then our credit trends as Hope highlighted in our outlook for 2026, are likely to be in the same area that we’ve seen over the last year or so.

Bernard von-Gizycki

Great. Thanks for the color and thanks for taking my questions.

Bryan Jordan

Sure. Thank you.

Operator

The next question is from Jared Shaw of Barclays Capital. Your line is now open. Please go-ahead.

Jared Shaw

Hey, good morning. Maybe circling back on the capital discussion, when we look at that $1 billion or so of additional buyback authorization, what’s the appetite for utilizing that over the course of ’26 with the backdrop of growth? Should we expect that you stay active and sort of at similar levels and see the capital ratios just continue to move lower?

Bryan Jordan

Yeah, Jared. This is a topic we work with our Board on. So I don’t want to get-in front of that, but they have given us a substantial authorization and we have a fair amount remaining under it. And we have as we said in the past and as Hope has highlighted here, we will continue to talk about where the economy is, where our balance sheet is, how do we look at capital levels in the context of the peer universe and what’s going on in the regulatory environment. Then having said all of that, I would say I’m comfortable reaffirming what we’ve said in the past, which is we believe that we can operate our balance sheet in that 10% to 10.5%. And while you might get a spike one quarter in mortgage warehouse lending or you might get it for a year, year-and-a-half, we’re comfortable bringing those capital levels down over the longer-term. So that’s a long way of saying, one, we want to deploy our capital in organic profitable growth with our customer-base. And if we don’t have those opportunities, we will be disciplined and as we’ve highlighted a couple of different ways, we’ve returned $1.2 billion of capital in 2025 and we’ll look for opportunities to be opportunistic, but we will participate in buybacks when appropriate.

Jared Shaw

Yeah. Okay, thanks. And then maybe just shifting over to the loan growth side. C&I loans, as you pointed out, had a really good quarter, but utilization rates have been pretty much flat over the last year. How are you — from your conversations with customers, what’s sort of the appetite for bringing that utilization rate up over-time? And is there any expectation in your guidance that utilization rates move higher or could that just be potential upside if you see increased optimism from existing lines?

Bryan Jordan

Yeah. I’ll start and then Tom can help me. I think customers are generally still pretty optimistic. We see it in our pipelines and the momentum in the economy appears to be very, very good today. I think as uncertainty emerges, whether it’d be Venezuela or Iran or oil prices or whatever the uncertainty could possibly be, people will take stock, but I think people are generally biased for growth. And so I expect generally speaking, the C&I utilization will improve. I think the other dynamic, Hope talked a little bit earlier about loan growth and loan growth opportunities. And in ’24 and ’25, we did a fair amount of work rebalancing. I mentioned improving the mix and profitability of the balance sheet. We also rebalanced where we were participating and we got out of a number of what we view as unprofitable long-term participations and things of that nature. So I think our balance sheet mix is set to be more profitable and to grow at a more sustainable and consistent level.

Tom, anything you want to add?

Thomas Hung

Yeah. I would just add, starting with your question on utilization rate, we certainly watch that closely. But I think the drivers behind changes in the utilization rate is really kind of more telling because there can be positive and negative reasons for that utilization rate going up and down. If people are optimistic and looking to develop, we can see that go up. It can also go up in our periods of uncertainty. And so that’s why I’m really more focused on the drivers underneath that number and what’s driving it. I would also add though, just overall, what we’re seeing across the board is increased momentum in our pipeline.

Hope and Bryan have both mentioned C&I as an example. What I would point to there is what I’m encouraged by is the increase in pipeline is coming from a pretty diverse set of businesses. We’ve seen it across our regional bank. We’ve also seen it to varying degrees in our specialty business units as well. And so this isn’t concentrated in any one area, but it’s more of a broad increase in pipeline that we’ve seen.

Jared Shaw

Great. Thank you.

Bryan Jordan

Thank you.

Operator

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

David Chiaverini

Hi, thanks for taking the question. I wanted to ask about the net interest margin outlook. Last quarter, you had guided to the high 3.30s, low 3.40s. Clearly, you outperformed that. It sounds like pricing trends are good on both sides of the balance sheet. How would you frame the outlook from here?

Hope Dmuchowski

Yeah. I would say our outlook is still similar in that 3.40% range. There’s a lot of timing and art on getting it exactly right in a quarter and an outlook. Specifically, this quarter we had in my prepared remarks, I discussed the uptick of growth in mortgage warehouse and the increase of NII there really helped our margin sustain quarter-over-quarter. Deposit costs, we’re really proud of how they were — we were able to work those down. I think we exceeded our expectations when we were on this call last quarter. So I don’t see 3.50% as the go-forward. I really think we’re in the mid 3.40s kind of some variation quarter-to-quarter.

David Chiaverini

Yeah. Great. Thanks for that. And then on the $100 million of incremental PPNR, you’ve been talking about that for a few quarters now. Curious as to how much of that has been achieved thus far and then perhaps the split between 2026 and 2027 of achieving that $100 million?

Bryan Jordan

Yeah. We have been talking about it since roughly the middle of the year and we talked about it in the context of $100 million-plus. And we’ve said the last couple of quarters that we continue to make progress. And we look at the opportunities across the business, it is clear to us that there are opportunities for greater penetration of treasury and wealth that I mentioned earlier in the call, greater opportunities for ensuring that we introduce broader relationships. So there are huge number of opportunities. It will build over ’26 into ’27.

So if you look at it mathematically, there’s going to be more in ’27 than there will be in ’26. But we think we made significant progress in ’25. I mentioned the improvement in market investor CRE lending and spreads there by connecting our professional CRE business with the structure and pricing that we’re doing in the market investor CRE and things like that will build over time. So I’d expect you’ll see some in 2026. You’ll also see some in 2027. I would tell you as it relates to 2026, we have it built into the outlook that Hope has laid out to you. So it is embedded in that outlook.

Hope Dmuchowski

I’ll add to what Bryan said and repeat, our goal is sustainable momentum and you’re going to see that build quarter-after-quarter. You’re not all of a sudden see a spike. And so as you continue to see our earnings momentum, you continue to see our revenue growth really in-line or outpacing our loan growth. You can attribute that to continuing to deepening these relationships. But it will build quarter-after-quarter, as Bryan said, build ’27 will build on ’26.

David Chiaverini

Very helpful. Thank you.

Operator

The next question comes from Peter Winter of D.A. Davidson. Your line is now open. Please go-ahead.

Peter Winter

Thanks. Good morning. The outlook for expenses is flattish for ’26, and it does imply expenses will be down quite a bit from the fourth quarter level. Just what are some of the levers for lower expenses versus 4Q? And what do you think is a good starting point for the first quarter expense?

Hope Dmuchowski

Yeah. We have elevated expense in Q4 due to the higher revenue. So if you look on the increased commissions quarter-over-quarter, that is another strong quarter, but also at year end, there’s a series of true-ups that every company does. And so I would look at that run-rate and say, what is it consistently going to be in Q1. Marketing and advertising is seasonal and so it does tend to be slightly down in Q1 and then higher in Q3 and Q4 at times. So I’m not going to give you an exact number, but I think when you look at the range and look at a glide path, take-out the one-time items that we’ve commented on in our presentation. We also had a lot of technology projects that completed in the back half of this year and that is part of what we’re using now that run-rate is starting to come back in line to reinvest in branches and hiring.

Peter Winter

Got it. And then if I can ask, I realize it’s still early, but are you starting to see any disruption in your markets from the recent M&A deals, any opportunities to hire bankers or bring in new customers? Are those conversations starting?

Bryan Jordan

It is still early and best I can tell, there’s no real integration work going on right now in terms of systems conversions and things of that nature. But we have seen opportunities to recruit. We’re actively recruiting as we always do across all of our footprint. And so we do believe that over-time, we will have an opportunity to continue to bring talented bankers and support folks all across the organization onto the platform. And whether the disruption drives that or otherwise, I think our business model, our focus, our culture has been an advantage and will continue to be so.

Peter Winter

Got it. Thank you.

Bryan Jordan

Thank you.

Operator

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

Michael Rose

Hey, good morning, guys. Thanks for taking my questions. Just two quick ones for you. Just talk to me about the commercial real-estate expectations, obviously, down Q-on-Q, down year-over-year. You’re going to have in theory, a couple more rate cuts and paydown activity, probably still pretty healthy. Do you expect that business to inflect this year? And is that an area of potential growth as we move later into the year? Or does the headwinds from payoffs, paydowns from lower rates just kind of persist through the year? Thanks.

Thomas Hung

Yeah. Hey, good morning, Michael. This is Tom Hung here. I think we can reasonably expect to see an inflection in our CRE business this year. As Hope alluded to, what we do in CRE does skew a lot towards construction and hence, we have a more of a spring-loaded balance sheet there. Given the lower amount of construction in the last couple of years, that’s why we have seen a decline in balances in that business. However, that has started to pick-up. I mentioned our pipeline momentum in the C&I business. I should also mention, there’s good pipeline activity in our CRE business as well.

If I look at our pipeline compared to even last quarter, it’s up pretty meaningfully. And you mentioned, especially with the rate decreases that have been happening and there is expectations for further rate cuts that really affects construction starts. And with more construction starts, that’s why we’re starting to see a very healthy build in our CRE pipeline. The final I’ll point to here is in our prepared opening remarks, one of the things we did mention as well is this quarter for the first time in about two years, we had a net increase in our total pre-commitments. So I think that’s a good early indicator of where we expect fee balances to go.

Michael Rose

Very helpful. Appreciate the color. And then maybe just one last one for me. I know you guys have a small credit card book. There’s obviously been some interest-rate cap discussion out there. I just wanted to see if that might have any impact for you guys. Again, I know it’s small. Thanks.

Bryan Jordan

Yeah, it is a small book. And if you apply the cap across our outstandings today, it’d be roughly $1 million a quarter. So it’s insignificant.

Michael Rose

Great. I’ll step-back. Thanks for taking my questions.

Bryan Jordan

All right. Thank you.

Operator

The next question comes from John Afstrom of RBC. Your line is now open. Please go-ahead.

Jon Arfstrom

Hey, thanks. Good morning.

Bryan Jordan

Good morning.

Jon Arfstrom

Most of my questions have been asked and answered, but just Hope a follow-up on Peter’s question on the first quarter. Anything else you would flag in the first quarter in terms of the balance sheet and P&L just so we can set up the year properly, the slope of the year?

Hope Dmuchowski

John, that’s a really general large question. I think we’ve hit the highlights. I’m really proud of where Q4 ended-up and it gives us tremendous momentum and excitement with our bankers and our clients going into Q1. I think when you look at mortgage warehouse especially, this tends to be a quarter where we always see our loans decline and then we kind of dig out of it in January, February and then March starts to stabilize in that business. We’ve continued to see strong momentum there in January. I do think that will be an upside for us. We won’t have the normal quarter-over-quarter significant volatility we have. Fee income is really too hard on ADR to say where the quarter is going to come in as well as refinance that. As you know, rates may be heading down and that could pick-up. But John, I think we expect another strong quarter to look similar to this one across the board.

On the expense side, we are adding bankers. So you can see in the deck, we’ve added over 100 employe — 100 FTEs since midyear. Most of that is in client-facing, client supporting technology positions that enhance the franchise and our ability to deliver revenue growth. I think as I’ve said before, marketing and advertising really fluctuates quarter-to-quarter. Q1 it comes down and then builds back up. If you look at our last two years of Q1, Q4 and Q1 expenses, John, pulling out that one-time commission, I think you’re going to see it look very similar normal seasonality.

Jon Arfstrom

Yeah. Okay. Very helpful. Mortgage company was another follow-up I had. So thank you on that. And then you know, Thomas, Hope, Bryan, I don’t know. Just one of the other questions is on the provision. And I guess we kind of danced around it before, but you’ve had two really good quarters. You’re talking about positive trends in credit and mid-single-digit growth. But how do you want us to think about the provision from here given the strong numbers over the last couple of quarters?

Thomas Hung

Yeah. I would start with, I think the most important measure of our overall credit performance is really in our net charge-off numbers and I’m proud of how consistently strong we’ve been in that. Provision has a little more noise than it just because of the number of factors that go into it. Most notably as we are calculating our reserves, obviously, our economic outlook as far as — and loan growth can go into that number as well. So if provision is higher in future quarters than we’ve had in the last two quarters, that can certainly actually very much be a positive as it can be driven by the amount of loan growth that we’re expecting and the momentum that we’re seeing. And so just given kind of the number of factors that go into the provision number, I think overall, I’m personally more focused on net charge-off as the best reflection of our credit quality.

Hope Dmuchowski

John, I made this comment last quarter and I’ll reiterate all-the-time. I do believe with all the facts we know today, we’re done in that building phase. We spent two-plus years constantly increasing our provision, increasing our coverage, not knowing what was — what was going to happen, whether it was the CRE wave. There was just so many uncertainties. There’s just as many uncertainties today, but I don’t think we’ll have to build. I think we’re at the right reserve level. So you can really think about it more normalized as to would we have a release quarter, but it should trend with loan growth, which it has not been in the last two years.

Jon Arfstrom

Yeah. Okay. That’s what I’m looking for. Thank you very much. I appreciate it.

Operator

Thank you. The next question comes from Chris McGratty from 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

Good morning.

Andrew Leischner

I know near-term you said you want to stay closer to the 10.75% CET1 and you mentioned earlier on Jared’s question that you believe longer-term you can operate your balance sheet in the 10% to 10.5% CET1 range. But I guess what do you and the Board need to see maybe from a market or regulatory perspective to get comfortable dropping down to that range? Thanks.

Bryan Jordan

Yeah. So it’s really two levers. And the first is most important and that is just sort of the economic data play out. If you were sitting here in the spring of 2025, everybody had concerns about how tariffs were going to impact the economy in the short-run. We’ve now seen nine months of evidence and through a number of different means, it’s had very little or minimal negative impact at this point. And so as those kind of economic factors play out, the outlook for the economy in ’26 and ’27 factor into our thinking. So as we look at the economy, we get more-and-more comfortable with the ability to bring those levels down.

The second is, as there is a regulatory backdrop around capital and excess capital. And clearly, we pay attention to where we stack-up in terms of peer comparisons. And you’ve heard some discussion and calls earlier this week that people are generally migrating capital levels down. So the combination of those things, I think over time gives us as a Board more-and-more confidence that we can manage our capital levels down. Our approach has been to take it in fairly small steps, take it from 11% to 10.75% and then we talk about 10.5% and then we talk about 10.25% and just do it in a way that we can manage through the — distributing the excess capital to deploying it in the business. And so I think it’s an evolving conversation. We’ll do it in a measured and thoughtful way, but it’s principally the economic drivers that we’re looking at great.

Andrew Leischner

Thank you. And then just another follow-up on the — in C&I loan growth and sorry if I missed this earlier. So outside of the mortgage warehouse growth, and I know there was another $700 million of C&I growth excluding the mortgage warehouse. Can you just talk about where that source of growth came from? And going-forward how we should think about C&I growth and where it’s coming from outside of mortgage warehouse? Thanks.

Thomas Hung

Yeah, happy to address that one. C&I was obviously the largest number. But outside of that — across our C&I platform, I think what I’m very encouraged by is it came from actually a very diverse mix across all of our businesses. You know, our regional footprint had very strong productions across all of our regions. In our specialty lines, I guess I’ll single out equipment finances as one business that had outsized growth relative to some of the other businesses. But I think the most important takeaway here is it was pretty broad-based and we saw it across most of our businesses and regions.

Andrew Leischner

Okay, great. Thank you.

Operator

Thank you. Next question comes from Christopher Marinac of Janney Montgomery Scott. Your line is now open. Please go-ahead.

Christopher Marinac

Hey, thanks. Good morning. I wanted to follow-up on the regulatory disclosures last quarter on the NDFI loans. I think about 60% was related to mortgage warehouse and obviously 40% is the rest. And I’m curious if the mortgage warehouse hope grows and gets to the upper-end of the growth range this year, does that mean that the lower percentage on other NDFI loans would occur or would you still be seeing growth in some of those other business and other lines outside of mortgage?

Thomas Hung

Sure. I’m happy to address that. I’ll break that into a few parts. First-off with the growth that we’ve had in mortgage warehouse that actually accounts for a larger percentage. It’s more closer to two-thirds of our NDFI exposure is in mortgage warehouse. And from a safety and soundness perspective, I remain very, very confident in the way we have excellently managed that business for a lot of years now, most notably, in that business, we take physical possession of the notes. So you can imagine the amount of paper coming in and out of our mortgage warehouse group each and every day.

In terms of other NDFI, given the noise that’s been in the market, we certainly continue to look at that very closely. But I would point to once again the years of experience we have in that sector, consistently strong performance. And I think there’s some differentiation for us as well in terms of we have a full-time team of field examiners at seven full-time staff with nearly 20 years of average experience. And through that team who are on the road probably 50 weeks a year. We do our own field examinations of generally one to three per customer every year.

We do supplement that with some third-parties as well. And in addition to that, once again, given kind of the recent noise, we have also completed a recently a comprehensive review of the — our non-mortgage warehouse NDFI book. We we segmented all of that into seven different segments, which have varying different risk profiles and we’ve done deep-dive analysis into each of those segments with unique scorecards we developed based on the unique risk of each sector. So we continue to look at it very closely. We — and we originate — we continue to originate in those segments as well. We do it in a prudent manner as we always have. And I think the results have been pretty good.

Hope Dmuchowski

Following-on Tom’s comments about mortgage warehouse, I really do want to reiterate what he said. I said is that November with LoCascio, the head of that business at a conference. We do mortgage warehouse and it looks exactly like a mortgage loan. We pick the closing attorney, we take physical ownership of the actual loan document sits in the same vault as the mortgages that are on our balance sheet. So for us, when we do NDFI, we have that underlying collateral with us and we get to sit at the table with a lawyer that we choose at the closing. So there always can be fraud, but we do it differently than some of our other peers. I want to point to that when you think about NDFI exposure. For us, if we had an issue with a borrower, we can — we have the notes, we can sell them into the secondary market and get our money back, which is not traditionally how the NDFI has thought about.

Bryan Jordan

And to your mechanical part of your question, if the NDFI number goes up in first-quarter, second-quarter beyond, it’s likely to be driven by faster growth in the mortgage warehouse lending business than any of the other NDFI lending businesses.

Christopher Marinac

Great. Brian, Tom and Hope, thank you for that. That’s all excellent color. And I know the data is now a quarter stale, but it seemed that you had no losses in that business and net of the problems in terms of just non-accruals were very small. So I suspect that’s still the case today.

Thomas Hung

Yeah, that’s absolutely the case in our mortgage warehouse book. I mean, I think to be expected in our non-mortgage warehouse NBFI book, there are a are slightly higher levels of classified assets and NPLs and there’s some charge-offs in that business that I wouldn’t call any of it a big outlier relative to our overall book.

Christopher Marinac

Great. Thank you again for the detail here.

Bryan Jordan

Thanks, Chris.

Operator

Thank you. The next question comes from Janet Lee of TD Cowen. Your line is now open. Please go-ahead.

Janet Lee

Good morning. Just to clarify on your expense guidance, with a flattish expense guidance, does that still hold if you achieve the higher-end of your revenue guide of 3% to 7%. So if you achieve 7%, is it still flat?

Hope Dmuchowski

Janet, yes, it does. What I’ll say is if we achieve the higher-end of the range with more countercyclical commission businesses than we had this year, that’s what brings it up above the 0%.

Janet Lee

Got it. Thank you. And just a quick follow-up. If I look at your fourth quarter loan growth results period-end 7% annualized, it looks like a lot of the narrative around C&I, potential mortgage warehouse and CRE inflection, those all sound positive. And it feels like there is a level of conservatism baked into your mid-single-digit loan growth. Is this a fair assessment or am I missing anything? Thanks.

Hope Dmuchowski

Janet, we are traditionally a very disciplined lender. And so if you look-back at how First Horizon has lent for the last five to 10 years, we tend to be pure average-ish. And so when we think about what we think the outlook is for the market, we’re not trying to overperform. We want to make sure that we get great clients that we can work with, that they have the right underwriting standards. They’re going — the way we keep our net charge-offs so low through a cycle is through the disciplined lending. And so absolutely, we could do more. Bryan’s great quote that he always uses is it’s easy to lend money, it’s harder to get it back. And so I think as I sit here today, I don’t see an economy that’s going to be above mid-single-digit loan growth unless there’s some stimulus put in the system.

Bryan Jordan

There’s some mixed things going on in the loan growth percentages. We’re not likely to grow our consumer mortgage portfolio at a very rapid rate this year. We just expect that most of what we will originate goes into the secondary market. But to your point, we feel very, very good about the businesses that you enumerated and we think we have great opportunities to grow there.

Janet Lee

Thank you.

Bryan Jordan

Thank you.

Operator

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

Anthony Elian

Hi, everyone. Hope, on fixed-income, I’m curious why ADR and fixed-income revenue didn’t grow in 4Q. It seems like the tailwinds were all there, including a lower rate outlook, volatility was moderate and the yield curve remained steep.

Hope Dmuchowski

Anthony, we saw a significant slowdown in that business as it related to the government shutdown. And so we mentioned on our call last quarter that early October was starting out really slow. So it was really kind of a tale of two quarters where the first-half of the quarter was pretty low. ADRs in the back-half came up. So it averaged to a good number, but there was a lot of volatility and really low ADR during the government shutdown.

Bryan Jordan

And the last half of December tends to be very slow as well.

Anthony Elian

Thank you. And then one more on expenses. So could you put a finer point on the degree to which any incremental commissions from the fixed-income business could impact the expense outlook? I only ask because I remember last year, your expense outlook quarter-after-quarter included increases in commissions, which helped give us more visibility into where total expense could come in for the year? Thank you.

Hope Dmuchowski

As we think about the countercyclicals, the rule of thumb is assume 60% commission as revenue increases year-over-year.

Bryan Jordan

I look at the commission-based nature of expense growth in 2026. If we get commission-based expense growth in 2026, it will be a high high-class problem. That is profitable business for us, it is broadening and deepening relationships. And so while we don’t anticipate that that’s going to drive the expense number, if we get that and we end-up with a higher than flattish or flat expenses, that will be a high-class problem in my view.

Anthony Elian

Thank you.

Bryan Jordan

Thank you.

Operator

Thank you. Our final question today comes from Timur Braziler from Wells Fargo. Your line is now open. Please go-ahead.

Timur Braziler

Hi, good morning.

Bryan Jordan

Good morning.

Timur Braziler

Bryan, I just want to make sure I heard your last statement correctly. So is it implying the flattish expenses imply flattish countercyclical revenues in ’26 and to the extent that you get growth there, then you’ll get growth in the expense base?

Bryan Jordan

Well, back to my earlier point about all models are wrong, some are useful. We have to make assumptions about what our countercyclical businesses and our commission-oriented businesses. So that includes our wealth management business that includes our fixed-income business that includes incentives we play around mortgage warehouse lending. So we’ve got a series of assumptions in there. I wouldn’t overread that we don’t expect that, that balance will change, but we have incentive programs and our straight C&I lending and our commercial real-estate lending. And as we look at the course of the year, we think all of it balances out given our expectations of where revenue is likely to come from that largely be in a flattish area.

Timur Braziler

Got it. And then just following-up on the loans to mortgage companies, just wondering what portion of the growth is coming from new client acquisition, if any? Or has that ramp that you’ve been focused on over the course of the past year or so? Has that largely concluded and that business is now more or less stable or is there still some level of benefit coming from new client acquisition there?

Thomas Hung

Yeah. I’m happy to address that one. I don’t have the exact split with me, but I can say that we continue to pick-up on new customers at a pretty good clip. As you may recall, there was some disruption in that industry earlier this year and also last year in terms of a few major players either exiting the space by decision or being acquired. And as a result they became a good number of strong customers that were potentially looking for new homes. And so our team has done a great job through the execution and the expertise we have in this space of picking-up new clients, but we certainly also upsized with existing clients as mortgage volumes have picked-up. And so the increase you’re seeing is really a combination of mix of the two.

Bryan Jordan

And we get a larger share of originations as a result of all of that as well.

Timur Braziler

Great. Thank you.

Bryan Jordan

Thank you.

Operator

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

Bryan Jordan

Thank you, Lucy. Thank you all for joining us this morning. We appreciate your time and your interest. Please feel free-to reach-out if you have any further questions, if there’s anything that we can do to help fill-in the blank. Hope you all have a great day.

Operator

[Operator Closing Remarks]