First Horizon Corp (FHN) 2025 Q3 法說會逐字稿

Good morning, all, and thank you all for attending the First Horizon third-quarter 2025 earnings conference call. My name is Brika, and I will be your moderator for today. (Operator Instructions)

I would now like to pass the conference over to your host, Tyler Craft, Head of Investor Relations at First Horizon Bank. Thank you. You may proceed, Tyler.

Thank you, Brika. Good morning. Welcome to our third-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.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, page 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.

Thank you, Tyler. Good morning, everyone. Thanks for joining us. We appreciate your continued interest in First Horizon. I'm extremely pleased with our performance this quarter, highlighted by strong adjusted EPS of $0.51 per share. We continue to deliver excellent returns for our shareholders and execute on our priorities across the franchise, focusing on safety and soundness, profitability, and sustainable growth. Thank you to our associates and clients for their continued dedication and trust in First Horizon.

I'll invite Hope to walk through the financial results, and I'll share my perspective on the rest of the year and the broader economy at the end. Hope.

Thank you, Bryan. Good morning, everyone, and thank you for joining us today. I'm excited to share the details behind another great quarter for First Horizon. Getting started on slide 5 with some of our key performance metrics. We generated adjusted earnings per share of $0.51, a $0.06 increase from last quarter. This earnings growth increased our adjusted return on tangible common equity by 135 basis points to 15%.

Moving ahead to slide 7, we cover our $33 million of net interest income growth and the 15-basis points expansion of net interest margin. NII growth benefited from average loan balance growth, including our high yielding mortgage warehouse business, which contributed to a 14-basis points expansion of total loan yield and drove margin expansion to 3.55%.

NII and NIM this quarter also benefited from the recognition of interest income associated with increased accretion related to the Main Street Lending Program. This impact is primarily concentrated in the third quarter.

On slide 8, we provide more information about our deposit performance in the quarter. Period end balances decreased by $52 million compared to prior quarter, driven by a $652 million decrease in brokered CDs offset by growth in index and promotional deposits, which reflect loans to mortgage company seasonality. We did see growth within non-interest-bearing deposits as period end balances were up $131 million.

Retention continues to be a highlight for our deposit story as we retained approximately 97% of the $29 billion imbalances associated with clients who had a re-pricing event in the quarter, while continuing to reduce our costs on those deposits even in a flat rate environment.

For deposit pricing overall, the average rate paid on interest-bearing deposits increased to 2.78%, up from the second-quarter average of 2.76%. Our objective is to achieve consistent beta through the cycle as the rate environment evolves. Please keep in mind that there is a delay between Fed rate moves and deposit rate adjustments as we work through client repricing.

On slide 9, we cover our loan portfolio performance. Period end loans were down slightly from prior quarter. Loans to mortgage companies decreased $132 million during the third quarter, which is in line with our normal seasonality that peaks in the middle of the summer. This portfolio continues to be roughly three-fourths purchase transactions versus refinances.

To the extent that mortgage rates decline in a falling rate environment, refinance activity could pick up. We saw a growth again this quarter in our C&I portfolio with period end balances of $174 million quarter over quarter. We continued seeing CRE balances decline in line with the longer-term pattern we've seen of stabilized projects moving to the permanent markets.

Importantly, we remain focused on growing higher profitability relationships. We see this in relationship depths with our clients and yields in our loan portfolio, which spreads from the mid 100 basis points to the upper 200-basis points range. This overall growth pattern is consistent with our expectations for average loan balance growth in 2025.

On slide 10, we detail our fee income performance for the quarter, which increased $26 million from the prior quarter, excluding deferred compensation. As improved business conditions led to increased customer activity for FHN Financial, we saw ADR increase to $771,000 and drive fixed income fee revenues of $57 million. Mortgage fees increased by $6 million driven by an MSR sale during the quarter.

On slide 11, we highlight that excluding deferred compensation, adjusted expenses increased $45 million from prior quarter. Personnel expenses excluding deferred compensation increased by $9 million from last quarter, driven by $6 million in incentives and commissions growth on the improved ADRs.

Outside services increased by $8 million, with the largest driver being project expenses in technology and risk, partially offset by declines in advertising as prior quarter campaign costs moved to new account promotion payouts within other expenses.

Expenses this quarter reflect a contribution of $20 million to the First Horizon Foundation. This higher amount for the contribution we typically make to our foundation maximizes the relative tax advantages available for contributions made in 2025.

Turning to credit on slide12. Net charge-offs decreased by $7 million to $26 million. Our net charge off ratio of 17 basis points is in line with our expectations for the year. Loan loss provision was a credit of $5 million this quarter. This resulted from loan payoffs, and the ACL to loans ratio declined to 1.38% as we saw criticized and classified loans decline and balances grow in lower risk categories. Our 2 basis points increase to NPLs is relatively flat, and we feel confident in continuing long-term credit trends of success in [problem loan workouts].

Slide 13, we ended the quarter with CET1 of 11%, which is flat quarter over quarter. When we completed our annual stress testing during the quarter, we noted that our updated near-term target will be 10.75%, and we intend to make progress towards this target in the coming quarters. With loan balance declining in the quarter, our share buybacks accelerated to $190 million, with approximately $8.6 million shares repurchased. We have more than $300 million in remaining buyback authorization for our current program.

On slide 14, we take another look at our full-year 2025 guidance. We remain confident in achieving year-over-year PPNR growth. We maintain our revenue guidance. The NII benefit this quarter discussed earlier and counter cyclical fee income from FHN Financial provide an offset to the asset sensitivity in our balance sheet in this falling rate environment.

Our expense guidance remains unchanged. With a significant foundation contribution noted earlier and the potential for increased commissions driven by ADR growth, as that business has accelerated in the third quarter, we currently expect that expenses may finish 2025 at the top end of our current guidance range.

As we noted in our stress testing press release, in the near term, we are targeting 10.75% CET1 as we continue progressing towards our long-term normalized CET1 targets. Our outlook for charge-offs and taxes remain unchanged as we close out the year.

I will wrap up on slide 15. We are proud of our performance, our 15% adjusted ROTCE this quarter, and to see our countercyclical business model support profitability as we enter a declining rate environment. Through continued capital normalization, the value generated by our credit culture and performance, and most importantly, our ability to execute on creating value through efficiency and revenue enhancements like those aligned with our $100 million-plus PPNR opportunity, we are confident in our ability to hit our near and long-term targets. Our target for the coming year remains achieving a sustainable 15%-plus adjusted ROTCE.

And with that, I will give it back to Bryan.

Thank you, Hope. We're starting to see activity pick up overall, and the economy continues to perform reasonably well. On the whole, our clients are growing more confident in navigating tariff uncertainty, and we're seeing their willingness to take action flow through to solid pipeline momentum.

Now that we have been seeing the Fed initiate rate cuts, the potential for more to come, we are optimistic that this will drive growth across the broader economy, and it is an important opportunity for First Horizon to capitalize on profitable loan growth across our diversified lines of business in the coming quarters.

This past quarter, our organization continued to make meaningful progress positioning First Horizon for the future. We invested further in our systems, technology, and processes, which enables us to deepen client relationships and deliver our broad financial capabilities with a community banking approach. Our bankers continue delivering our relationship approach to our clients.

The third quarter was our highest origination funding quarter in the last two years. Bank M&A activity clearly accelerated in the third quarter. While our near-term focus is unchanged, I am increasingly confident in our ability to integrate a well-structured merger with a strong cultural fit in our existing footprint if such an opportunity arises in 2026 or beyond.

Our team's energy remains high, our strategy is clear, and our competitive position and our attractive southern footprint is enviable. We see continued strength in both our credit trends and our capital outlook. Forward-looking, we remain focused on executing the initiatives that result in more than $100 million of additional pre-tax net revenue.

We expect to drive sustained profitable growth supported by our balanced business model and our unwavering commitment to safety, soundness, and serving our clients. Our goal of delivering sustained 15%-plus adjusted ROTCE remains firmly in sight, powered by the hard work of each of our associates. Their dedication and resilience continue to drive our momentum and success.

Brika, we can now open it up for questions.

(Operator Instructions) Jon Arfstrom, RBC Capital Markets.

Hey, Bryan, maybe we'll just start the call with -- you talked a little bit about the activity picking up and some pipeline momentum. How optimistic are you on growth and is it really -- is it a noticeable change from a quarter ago?

Yeah, it has picked up. There is more confidence, and it is noticeable. And I would say it's yet to be seen how anything that occurs with the new friction around Chinese tariffs may impact things, but we did see confidence building throughout the quarter and pipelines beginning to build in the middle of the quarter and beyond.

And so it has been a noticeable change. Customers are more confident. And more forward leaning, lower rates and the trajectory of rates added to the folks' confidence. And I see no reason in the immediate near term that that ought to solve, and it looks like it's sustainable at this point.

Okay, good. And then, Hope, one for you, just on the margin. It surprised us positively. It feels a little bit elevated. Is there a better starting point for the margin for the fourth quarter, given the Main Street impact and the mortgage company impact?

Jon, great to hear from you, and thanks for that question. Yes, we did have, as we note in our earnings slide, a one-time adjustment this quarter that did increase our margin. Last quarter, we were at [340], and I think that's a good way to think about in the high [330s] and [340]. We've been pretty consistently there for the last few quarters and even this quarter if you adjust out that one time item.

Casey Haire, Autonomous.

Wanted to touch on the core, the deposit franchise on slide 8. I know there were some seasonal challenges this quarter, but just looking at the trends, the core deposit franchise is down almost 8% over the last two quarters. Just what is driving this and what is being done to kind of stabilize or reverse the trend and sort of the outlook?

Yeah, Casey, I'm not sure exactly what you're calling core deposits. We really pull out brokered and wholesale in the deck in order to really show the [match] funding that we do with mortgage warehouse. But H8 data is slightly flat to decreasing. The deposits in the industry are shrinking, specifically out of banking. We mentioned in our last earnings call that we saw a mix out of money markets and we looked at where our clients are [tranching] their funds, it was into brokerage accounts.

And so I think the competition for deposits will continue to heat up. We talked about last quarter and this quarter's prepared remarks that we have a high retention rate of our existing clients, and we put additional money into marketing and cash offers in order to increase new to bank clients.

But deposit competition has been significant this year as you've seen, especially as it comes to rate and bringing that rate down on existing customers. It's really a balance that we focus on how do we keep existing customers with a fair rate through this environment.

Okay, all right. I'm referring to like the DDA and the base rates, right? That's down 8% over the last two quarters, that's definitely below -- that's definitely lagging H8 and you guys are talking about keeping beta consistent with the prior cycle. That just seems kind of a challenge with the loan to deposit ratio at 97% and the core deposit franchise under pressure.

Yeah. Casey, on slide 8, if you look at the stacked bar chart third quarter of 2024, non-interest-bearing deposits, which is really, a lot of our DDA and our customer money there, it went from 9.2% to 11.4% in a year. And so I don't see that as decreasing. DDA is just a subset when you look at price quarter, but we are focused on growing that non-interest-bearing deposit core, and we've continued to see momentum quarter over quarter as illustrates on slide 8.

Yeah. Casey, we feel very good about the core deposit franchise. We feel very good about the retention of customers and particularly our ability to adjust our repricing. We are mindful of the loan to deposit ratio, and that's one measure, but I think when you look at loans and securities to total deposits, our comparisons are much more in the middle of the pack.

We feel good about the momentum we see in the business. We have a significant focus on our core consumer banking business. We have recently hired a new Head of Consumer Banking, and we see a very good momentum there. And it's easy to conflate what's happening in wholesale and brokered with what's the core franchise, but we feel very good about the progress we're making there and have a very optimistic outlook as we look into '26 and beyond.

Casey, one note. I think you made -- I'm trying to figure out your question. I think you may be talking about the promotional deposits and CDs. That is a subset that we show for what the opportunity is to reprice down during a decreasing rate cycle. A lot of those do go to base pricing and are somewhere else in the chart.

So it may be a correlation that's not a causation, and we are trying to bring new to bank clients down to base rate, and then they fall out of that bucket over time.

Okay, all right, and just last one for me. Bryan, I wanted to touch on your M&A comment. So in terms of what you guys would be looking for in terms of size and geography, if a bank acquisition were to present itself in 2026.

Yeah. I want to be really clear and sort of reiterate where I started. Our near-term priorities are not changed, and we're very focused on driving the $100 million of incremental pretax pre-provision and continuing to focus on executing our business model. Given that the M&A environment has picked up and the progress we're making on the foregoing, I feel very good about our ability to integrate if the right opportunity does present itself in '26 and beyond.

That said, I tried to focus my comment on the fact that we are very focused on the footprint that we're in, that is a fill-in opportunity with a strong deposit franchise. It gives us the ability to leverage our middle-market consumer, our middle market commercial consumer, private client wealth businesses across that. So cultural fit is very important. But our short-term focus is unchanged. We're very focused on executing the business model. Just really mindful of the fact that the environment has changed and that we will be opportunistic, if it presents itself in '26 or later.

Ben Gerlinger, Citi.

I just wanted to kind of follow-up on my question regarding M&A. It seems like people have kind of implied that First Horizon would be a potential seller down the road given the one that has happened before, I guess you could say. But when you think about just the environment, it seems like bigger deals are more [involved] and more accepted by regulators.

When you think about the opportunity in front of you and shareholder value, I mean, are you taking yourself off the table or is this more so just kind of positioning if something smaller did come up that you could potentially be a buyer so just kind of think about -- I mean, the share price is down quite a bit (technical difficulty)

I'm sorry. The last part broke up, Ben.

Based on your closing remarks, when you talk about being a potential buyer yourself, it's taking your share price down a bit because it's not really what an implication that people thought might happen. Just hopefully, you can expand a little more.

Well, I don't think that I intended to change anything that we have previously said other than to enforce the idea that we are making progress on the priorities that we have laid out, and that we are increasingly confident that given the right opportunity in our footprint that we could be in a position to do that. It is clear that with recent approvals and the otherwise enthusiastic M&A environment that the regulatory backdrop seems to be improving.

In terms of our thinking about our franchise long term, I've tried to be very consistent on this point over roughly 18 years, which is that we are very focused on creating value for our shareholders, both near and long term that we believe we have to operate the franchise with a long-term mentality. And that means focusing on building the business, in our case for the next 161 years, and investing in that regard.

I don't believe that changes any of our optionality. And while we were not for sale in the early part of 2022, we received an offer that our Board did the right thing in considering that alternative and the various alternatives and the need to create maximum value for shareholders.

And so I'm not changing anything about the future, just saying that we're in a much better place today than we were six months ago. And that given the changing environment to the extent that opportunities present themselves, we're in an increasingly improving position to consider fill-in opportunities in our franchise.

Got you. That's helpful. And then just on a core basis, Hope. It seems like you said the Main Street lending program added roughly 7 bps. So I mean, when we think about a starting point for fourth quarter and into next year, kind of the high 3.40s, I feel like that's an appropriate level.

But when you think kind of just the cadence and potential cuts in October and December, you talked about repricing and deposits. How do you think we should position the margin movement, especially with mortgage warehouse [being] a seasonal outflow over 4Q (inaudible)?

Yeah, I think in the nearer term, Casey, the high 3.30s or low 3.40s is the way to think about us. That's where we've been the prior two quarters. And if you adjust out the Main Street Lending Program terminations, that would bring us down to the low 3.40s this quarter.

As far as repricing the deposits, I would expect it to look a lot like it did last year where in Q3, we saw the rate cut. And then in Q4, we picked up the beta. I don't know if we'll have an October cut or December, but that repricing will always lag.

To my earlier comments about slide 8, I think we may have confused people about core deposits versus noncore deposits and trying to show the opportunity to reprice. We particularly took out the added in the index bar, which shows what we can reprice down more real time. And then the promo, [$13.6 billion] of promo deposits and CDs, that will reprice at promo exploration down with each rate cut. So we've seen a high 60, low 70 beta, and we are targeting -- trying to continue that trajectory as we go into a falling rate environment.

Sorry, Ben. One correction. I was looking at my chart wrong, it's $22 billion of promotional deposits and $13 billion of base. I inverted that. So apologies for that.

Anthony Elian, JPMorgan.

Hope, you had a strong quarter on both NII and fees, but in your remarks, you maintained the revenue outlook of flat to up 4%. I know you noted that expenses may trend at the high end of the range. But given the strength you saw in revenue in 3Q, I'm wondering if you also expect revenue to trend closer to the high end of the range or if there's a level of conservatism in your outlook.

Yeah. I think if you look at the fact that we have 9 out of the 12 months base and you look at what our year-to-date results are, we'll absolutely be -- short of any unexpected event in the next 2.5 months, we would expect to be towards the higher end of the revenue range. The one that I can't predict well right now is FHN Financial. They had a really strong fixed income quarter, specifically a really strong September.

In the last two weeks, we've seen that come down pretty significantly, partially, we think due to the government shutdown. But I think to get to the higher end of that range, we would need FHN Financial to have a similar quarter to Q3, if not better.

Thank you. And then one on credit, maybe for Tom, if he's on the line. There were several questions on the large bank calls yesterday on their loan exposure to NDFIs given growth in that category over the past several quarters. I think your loan exposure to NDFIs is a little over 10% per the call report. Just given what's happened in the past several weeks, is this a loan category you're doing a deeper dive on now? Or anything more broadly on credit? Thank you.

Yeah, Anthony, I am on the line, and thanks for the question. If I look at our NDFI book, I mean this is an area we've always, even before recent events, always monitored very carefully and looked at. Overall, I kind of break our NDFI book into three separate components. Our consumer lending portion of NDFI actually remains very, very strong. There's a very low amount of our CNCs.

I think kind of -- I would specifically more focus on, based on the recent events, on our consumer financing portion of that. That's where kind of our auto and retail financing would fall into. For us, it's a relatively small book. It's only about 2% of C&I or about 1% of total. And there are some elevated NPLs and new classifieds in that book. However, it's all well within control.

And we also have a lot of expertise and a lot of history in this space. And so one thing I would point to, for example, is we've always maintained a full-time team, the field examiners that are consistently out of our customers' on-site visits. That team has an average of 18 years' experience in the space. And between that team and outside vendors, we're on site one to three times every year at our customer sites to examine the collateral.

Jared Shaw, Barclays Capital.

I guess maybe sticking with credit. You talked about the broader improvement in the criticized and classified. Did you change any of the assumptions on the macro side for the for the CECL analysis driving that allowance? Or is it all just sort of fundamental loan-by-loan improvement?

Yeah. So on the CECL modeling process, we use Moody's Analytics for running our macroeconomic scenarios. There is some management judgment in terms of our weighting between the baseline and the upside and the downside scenarios. But like I said, largely, we really follow Moody's Analytics.

I think maybe what you're driving at is regarding the decrease in ACL that we had this year, some of that is individually loan driven. I think you probably noticed our criticized assets are down about 9% or $330 million on the quarter. So we've certainly seen some good overall positive grade migration that's contributing to that. And so it's partly that and as well as the updated Moody's Analytics outlook.

Okay. All right. And then on the loan growth, Bryan, you referenced the pay down of construction and move over to permanent. I guess at what level or at what point could we expect to see net growth in CRE?

Yeah, so Jared, that's a business that is, as you know, you originate a loan, and it funds up over two or three or four years, and that pays off all at once as it goes into the permanent market. So it has a bit of a spring loading effect over time. We are starting to see with lower rates that those pipelines have built. The third-quarter origination activity was significantly better than earlier in the year.

So we're seeing progress. And as those projects fund up, you'll start to see it come into equilibrium. I would expect you'll have another quarter or two of continued paydown payoffs, but we're starting to see borrowers lean in a bit more.

Tom, I don't know if there's anything you'd add to that.

No, I think that's right. That's really kind of the effect of a more construction heavy portfolio on our CRE [site].

Okay. And then if I could just ask a final one. On the Main Street accretion, was that related to loans acquired through IBERIA and just accretion at final payoff? Or I guess what was driving that outsized accretion this quarter?

No, it's not related to IBERIA or an acquisition. The Main Street Lending Program is coming to an end, and they gave banks the opportunity to repurchase those loans for existing clients. And so we had some existing clients that were part of that program, and we repurchased below or purchased a loan (multiple speaker) for the first time. But it's now on our balance sheet position from that loan hitting our balance sheet at the end of last quarter.

Okay, and that's all wrapped up. There shouldn't be a tail in the fourth quarter with that.

Correct.

Timur Braziler, Wells Fargo.

Sticking to the M&A theme, it's been a couple of months now since the Pinnacle-Synovus announcement. I'm just wondering what you're seeing in terms of fallout from that transaction. Is that increasing competitive nature on loans, deposit, talent? Just maybe talk us through kind of the first couple of months post that deal.

Yeah. I think it's too early to see an awful lot of impact from that. I would say that the environment for lending, in particular, and people to a certain extent has really -- and experienced [RM/PM] team has gotten tighter over the last couple of quarters. You see it in pricing, in terms, in structure. So it's a competitive environment.

And I think it goes back to we've had a significant shift in the last, call it, two years from people wanting to bring down risk-weighted assets to a real emphasis on growth and growth in lending. We think that the environment is pretty constructive as we look into the rest of 2025 and into 2026. We've had very good success in recruiting bankers, and we continue to talk to bankers all across the franchise.

And we're looking to be very, very focused in growing the franchise by focusing on our commercial middle market banking, our specialty businesses, our private client wealth teams, and we think we are well positioned to do that over the next, really, several quarters.

Okay. And then, Bryan, your comment on potentially integrating a well-structured merger. I mean, that's a little bit more pointed than in the past in terms of First Horizon maybe looking to engage in M&A here in the next couple of years. I guess what does that mean for just the potential pool of buyers out there? I know recent quarters, the comment has always been that there's just not that many logical buyers kind of lined up.

Is this further reinforcing that statement? And I guess, is that really the driver here? Is that there's lack of logical buyers and then therefore you got to just keep going and kind of consider all possible options on the capital front? I'm just wondering what changed in terms of making that more pointed comment on the M&A side.

Yeah. I think it's really much more narrow in that, one, the regulatory environment and particularly the bright line around $100 billion or Category 4 and a total asset seems to be a little less bright and potentially can be moved up over time and significantly easier to deal with.

Two, the approval process is significantly quicker than it has been in the not-too-distant past. And so that's a positive. And there does appear to be more activity in terms of institutions thinking about what the future may look like. And as we look at our footprint, it is an opportunity to potentially gain a bigger foothold in some of these very fantastic markets that we have across our franchise.

With respect to our longer-term thinking, it really is not a change. We are very focused on deploying capital in the business. We want to focus first on deploying that capital on an organic basis. M&A is an alternative to deploying that capital, but it is not our priority. Number one growth is focused on organic deployment of capital in our franchise, and we think we have a number of growth opportunities.

I don't think it changes anything about the optionality we have as an organization. We believe we create maximum shareholder value by deploying capital in the business, growing and building for the long term. And we don't think that in any way changes other alternatives that are available.

So the big shift is the environment has changed significantly in the last several quarters. And the bright line seems to be a little less bright and approval processes and the ability to announce the transaction and get it done in a timely manner seems to be better. And so while I said earlier that we're not making a big shift in the near term, I am saying that, given that backdrop, who knows what happens in '26 and '27 and beyond.

Ebrahim Poonawala, Bank of America.

This is [Eric] on for EB. Hope, you mentioned kind of the 15% ROTCE target next year. I know you guys have talked previously kind of about expenses at a high level for next year. Can you just talk about, as we head into '26, kind of what you need to do to hit that 15% to achieve that? And kind of what's baked into being able to kind of get there?

Yeah. Our last slide in the deck shows the three components pretty clearly. The first is bringing capital down. We have a near-term target of 10.75, which we're working towards after we successfully completed our stress testing. Longer term, Bryan, and I have been very public, we think [10] to [10.5] is the right capital level for our balance sheet.

The second is credit normalization. We've been building provision for two-plus years now for charge-offs that haven't materialized that we don't expect that we will see [a spike]. We've given guidance this year, charge-off between 15 and 25 basis points, and we're coming in on the low end of that. And so not having to build provision and being able to have a more normalized credit cost we build our balance sheet.

And then third is PPNR growth in our existing book. We have $100 million-plus of opportunities that we expect to get out of our existing client base and franchise over the next two-plus years.

Okay. Got it. That's helpful. I guess as the follow-up, I was curious just about capital. CET1 kind of at 11%, you've said 10.75% is kind of the near-term target. And Bryan, maybe kind of with respect to the M&A point, is that excess capital? I mean, you talked about your buyback capabilities. Are the deals you're thinking about kind of tuck-in? Or are they larger deals that could be done in 2026?

I think as we sit here today, if we use capital for M&A, it would largely be tuck-in. We think we have significant growth opportunities to invest organically in the franchise, and we really do believe that buyback opportunity, returning capital, repatriating capital to shareholders through that program gives us the tools or the flexibility to manage our capital levels.

We talked to our Board consistently about capital, capital adequacy and how we deploy excess capital. And we're not making any significant shifts in the way we thought about it for a number of years.

Got it. Okay, yeah, a lot of M&A questions. Stock's down 12% right now just because of that fear, I think, so wanted to make sure that you had the chance to kind of clarify those comments.

Yeah, I mean, I'll reiterate what Bryan said. We haven't changed our stance. We've been talking about, opportunistically, what has changed is that there are smaller banks that are selling in our footprint. And the comment was meant to note that we are able to take advantage of that with our strong franchise and reiterate what Bryan said earlier.

We were not for sale when TD brought us an offer, but our Board looked at it and did the right thing. I think we might be over indexing a little bit on a couple of comments Bryan made about a changing M&A environment. We have not changed our stance on optionality.

Chris McGratty, KBW.

This is Andrew Leischner on for Chris McGratty. Just going back to capital. As you make progress towards that updated 10.75% CET1 target, will buybacks continue to be more of a function of where loan growth lands in any given quarter? Or will we take greater appetite for those buybacks going forward? Thanks.

Yes, absolutely. The first priority is to grow the balance sheet with loan growth. And so as we put out the target for our share buybacks at the beginning of a quarter, we look at what our forecast is for loan growth. And then what capital we cannot deploy to loan growth, we then deploy to share buyback second.

Christopher Marinac, Janney Montgomery Scott.

Bryan, I know Tom talked about NBFI loans earlier. I was just curious about the deposit opportunity with these customers, particularly outside of the mortgage finance channel. Is that an area that you can grow in the treasury area and otherwise?

Yeah. That's an area where we've had a tremendous amount of focus over really the last several years, and we have made significant progress with respect to our focus on deposit gathering activities in our specialty lines of business more broadly. I think in our supplemental information, you'll see that the loan deposit ratio is very high. It's not relatively high, it's very high. But we've made progress in that regard.

Those businesses have traditionally been more lending oriented. They are very, very attractive because they have attractive competitive dynamics. We have deep expertise and knowledge in those businesses. And we have made progress, and I expect that we will continue to make progress penetrating deposits. We've put in place treasury management products that make it significantly easier with the ability to gather those deposits. So I feel good about the focus and the progress, and I expect that we will continue to see that deposit growth.

Janet Lee, TD Cowen.

I know you guys touched up on FHN trading revenue before, but I want to just get more color. So most of the strength came in September, it seems. But is that sort of around when the rate cuts came? Because when I look at the shape of the curve, looking at the two to five and -- the spread between the two-year and five-year, the average spread hasn't changed that much in the third quarter versus 2Q. So I'm trying to understand what drove the 40% increase in ADR in the quarter and the sustainability of the level going forward? Or if the strength had anything to do with more securities repositioning from the banks?

Yeah, Janet. We saw the momentum pick up really the two weeks before the rate cut as the Fed started to strongly signal that we would see a rate cut, and we saw it continue through early October, first week of October until the government shut down. And so I don't believe and we have not heard that it's a ton of balance sheet repositioning.

We typically tend to see that at the end of the year. We've commented in our last two years in our earnings that in Q4, we saw FHN Financial pick up due to balance sheet restructuring at year-end, but I don't believe we had much of it this quarter.

As far as the ability to maintain it, I think whether we see a rate cut this month or in December would be positive for the business as well as the shape of the yield curve, which is moving around a lot right now in the last week or two as we look at both the tariff impact and the government shutdown impact. I'm hoping it rebounds from where we've been in the last two weeks.

Okay. Got it. That's helpful. And in terms of the other C&I balances, excluding the loans to mortgage companies, so that increased this quarter, but roughly at half the pace reported in the second quarter. Has anything changed?

I know that Bryan commented that the pipelines are building. But is there anything to read from the change in C&I loan growth this quarter versus the last quarter? And do you still expect that sort of mid-single-digit loan growth in 2026 is a reasonable place to be?

Yeah. No, I would say there's no significant change third quarter, second quarter. In the second quarter, our C&I balances, excluding mortgage warehouse, was up over $170 million. So I think that reflects good momentum. When we're talking kind of 1 point difference quarter to quarter, that's a matter of just a couple of deals. And so that's just a little bit of inherent lumpiness. But overall, we have really good momentum in our C&I and in our CRE channels.

And with respect to the 2026 outlook, I'm still comfortable with the mid-single-digit loan growth numbers. And clearly, as I said earlier, we're expecting a turn in commercial real estate lending as rates have come down, and projects pencil out better and the momentum that we're seeing in the organization. So yeah, we're still comfortable with what I said several months ago about 2026.

Got it. And my last question is just following up on M&A. For potential M&A opportunities, would you look at contiguous footprint? Or is it focused on your core footprint? And also in terms of the timing, would you be comfortable crossing $100 billion without the regulatory -- I mean, without the asset threshold being lifted above $100 billion?

Yeah. So a couple of thoughts. One, I said near term, nothing's really changed. So I think this is -- if anything, it's '26 and beyond. But yes, we'll be focused on our core franchise. And two, I'm increasingly confident that the ability to cross $100 billion is significantly better than what have been 18, 24 months ago.

(Operator Instructions) Nick Holowko, UBS.

Maybe just one more on M&A. I know that you've flagged in the past, the PPNR opportunity, $100 million-plus over the next couple of years here with a chunk of that at least stemming from residual opportunity because of the IBERIA, First Horizon merger. Do you feel like you need to realize a significant portion of that $100 million-plus opportunity prior to engaging in any further M&A?

Well, it's been our focus to be well down the path. And as we continually have said, it's $100 million-plus in pretax pre-provision. We are in the process of realizing that. And my message this morning is we are making progress in that regard. I feel good about the progress that we are making and that we are likely to make, and that gives us increasing confidence, that if anything presented itself in terms of a fill-in opportunity, that we would be in a position to execute on both.

Understood, thank you. And then I guess looking out to '26 and the potential for flattish expenses there, ex any changes in the fixed income business, can you just touch on how you're thinking about balancing expense discipline versus investing, especially as you think about the possibility of being a much larger institution?

Yeah, I'll start, and Hope can point it up, I suppose. Look, we think we have the ability, given the levers that are in place, and particularly some of the investments that we've been making over the last couple of years, to deliver on flattish expenses caveated as you appropriately did with the fee income businesses.

So we can deliver on that, that we can continue to invest in technology, infrastructureand continue to deliver superior customer and associate experiences, and that we can do all of that and maintain flattishness. That does include continuing to build the capability to be an LFI or a Category 4 banking institution.

So our outlook for expenses does not, in any way, inhibit our ability to continue to build the franchise for the long term and continue to build it in a way that delivers for our customers, communities and for our associates and shareholders.

I think Bryan said it well. I'll reiterate, we are still investing with flat expenses. We do have tanker growth built in there. We have [de novos] that are opening later this year and next year. Bryan mentioned earlier, hiring a new retail head that is also going to make some investments back into our franchise.

We announced 2.5 years ago that we would have a three-year $100 million investment back into our technology. Those investments do come with additional revenue and cost saves. We're getting to see, as we come to complete that third year, we're seeing the benefit of those efficiencies.

We've also made many strategic decisions that decrease our operating costs. We've talked before when we've had some restructuring charges in our earnings about outsourcing our facilities management to [JLL], our broker-dealer partnership with LPL. All of these things are items that help us drive efficiencies in our expenses while raising revenue.

Jon Arfstrom, RBC.

I'm annoying here Bryan to talk about this. But I think you're saying you cannot run the company as if someone larger like TD is going to come in with a big premium in the near term. You have to keep looking ahead growing the franchise. If a small deal comes up, you consider it. If it enhances franchise value, a big premium comes in next week or a year from now, the Board would consider it. But if it doesn't happen, you can't just sit there and wait. I know it's annoying, but that's the message, right? Really, nothing's changed in terms of your approach?

Yeah, absolutely, Jon. You said it much more articulately than I've said it this morning. Nothing has changed in our view. We believe we have to run the franchise for the long term. And that does include considering deploying capital and fill-in acquisitions. We believe very strongly that if we create value by delivering high returns, improving profitability, growing the franchise and capitalizing on one of the best footprints we believe in the banking space, that that not only keeps our optionality open, but it doesn't take any off the table. So I think as you articulated, we don't see ourselves limiting our optionality in any way by continuing to invest in delivering the franchise.

Anthony Elian, JPMorgan.

Hey, Bryan, one more on M&A. And I'm curious, you kind of emphasizing in-footprint, existing footprint. But if I think IBERIA and Capital Bank, they expanded your footprint to the Carolinas, Texas, Louisiana. So I'm curious, why put the emphasis on in-footprint this time around in your prepared remarks? Thank you.

Yeah, Anthony. It's really, in many ways, very, very different. If you think about Capital Bank, for example, we were largely a Tennessee-based franchise at that point in time. And that really enhanced our small presence in the Carolinas, expanded South Carolina, in particular, in Florida. IBERIABANK sort of rounded out that footprint.

And today, we have a geographic footprint that broadly ranges from Texas to Florida to Virginia to Arkansas and back to Texas. And we look at the growth and the opportunities in that footprint, it really seems the place that we ought to focus. And we don't see anything, at least immediately, that says we ought to try to expand upon what is one of the highest growing parts of the US economy.

That does conclude our question-and-answer session today. And I would like to hand it back to our CEO, Bryan Jordan, for some final closing comments.

Thank you, Brika. We appreciate everyone joining us this morning. We appreciate your time and your interest. If you have follow-up questions where you need additional information, please do not hesitate to reach out. Hope everyone has a great day. Thank you.

Thank you all for joining the First Horizon third-quarter 2025 earnings conference call. Today's call has now concluded. You may now disconnect, and please enjoy the rest of your day.