First Horizon’s Q4 2025 Earnings Call: M&A Timing, Deposit Franchise Stability, and Buyback Plans Clash With Prior Statements

Date of Call: Jan 15, 2026

Financials Results

• EPS: $0.52 per share

Guidance:

• Revenue expected to grow 3% to 7% year-over-year in 2026.
• Expense outlook remains flattish, except for incremental incentive expenses with higher countercyclical revenue.
• Net charge-off expectation of 15 to 25 basis points.
• Taxes expected between 21% to 23%, similar to 2025.
• Near-term CET1 target remains at 10.75%, fluctuating between 10.5% and 10.75% with loan growth.

Business Commentary:

Strong Loan and Deposit Trends:

• First Horizon reported a 2% increase in period-end loans, with a $1.1 billion increase from the prior quarter, and a $2 billion increase in period-end deposit balances.
• The growth in loans was driven by increased loans to mortgage companies and strong growth across the C&I portfolio, while deposit growth was supported by lower average interest-bearing costs.

Improved Net Interest Margin:

• The net interest margin was reported at 3.51%, with a slight compression of 4 basis points, but excluding the Main Street Lending Program impact, it expanded by 2 basis points.
• This improvement was largely due to disciplined control of deposit costs and strong growth in loans to mortgage companies.

Increased Profitability and Shareholder Returns:

• First Horizon achieved an adjusted return on tangible common equity of 15% in the back half of 2025, returning just under $900 million of capital through stock repurchases and just over $300 million in dividends.
• The improved profitability was driven by a better loan mix and pricing, and tighter integration of deposits within client relationships, enabling continued capital returns to shareholders.

Positive Outlook for 2026:

• The company expects year-over-year PPNR growth with mid-single-digit balance sheet growth and positive operating leverage, projecting total revenue growth of 3% to 7%.
• This outlook is based on expected improvements in market conditions for fixed income, consumer mortgage, and loans to mortgage companies, alongside continued investment in technology and personnel.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed optimism about 2026, citing 'significant progress in delivering value,' 'strong fourth quarter,' 'improved profitability,' and 'more momentum going into 2026.' They highlighted loan and deposit trends, revenue growth, and capital returns.

Q&A:

• Question from Casey Haire (Autonomous Research Limited): Could you take us through the base case and wildcards for the 3% to 7% revenue outlook?
  Response: Base case assumes current forward curve; wildcards include rate drops and loan growth exceeding mid-single-digit targets, especially if countercyclical activity like refinance picks up.

• Question from Casey Haire (Autonomous Research Limited): What would expense growth normalize to after this flat year in '26?
  Response: Long-term normal growth is 2.5% to 3% in line with inflation, after multiyear tech investments wind down.

• Question from Ryan Nash (Goldman Sachs Group, Inc., Research Division): What are the key drivers of mid-single-digit loan growth across products?
  Response: Growth expected in mortgage warehouse (picking up), C&I (hit inflection point with strong originations), and CRE (slowing paydowns, pipeline momentum).

• Question from Ryan Nash (Goldman Sachs Group, Inc., Research Division): What are deposit growth expectations and can you sustain a 64% beta?
  Response: Loan growth targets lower than deposit growth; deposit beta sensitive to macro factors like Fed balance sheet, not just competition.

• Question from John Pancari (Evercore ISI Institutional Equities): Can you unpack revenue guide across net interest income and fees?
  Response: Fee income upside from mortgage refinance and FHN Financial; NII depends on deposit betas and loan growth timing, but revenue guide is robust across scenarios.

• Question from John Pancari (Evercore ISI Institutional Equities): What are updated thoughts on whole bank M&A?
  Response: M&A not a priority; focus is on organic profitability, penetrating customer base, and leveraging existing footprint.

• Question from Bernard Von Gizycki (Deutsche Bank AG): Are you at a sustainable 15% ROTCE?
  Response: Yes, 15%+ is sustainable on average, though quarterly fluctuations possible due to accounting and capital levels.

• Question from Bernard Von Gizycki (Deutsche Bank AG): How do you think about reserve build given outlook?
  Response: Strong non-cost resolutions in 2025 support reserve releases; reserve levels conservative at 6-7 years of coverage, expecting credit trends to remain stable.

• Question from Jared David Shaw (Barclays Bank PLC): Appetite to utilize $1B buyback authorization in '26?
  Response: Will deploy capital in organic growth; if not, will be opportunistic with buybacks, aiming for long-term CET1 of 10-10.5%.

• Question from Jared David Shaw (Barclays Bank PLC): Expectation for C&I utilization rates to rise?
  Response: Utilization likely to improve with economic optimism; pipeline growth broad-based across businesses, not just concentrated areas.

• Question from David Chiaverini (Jefferies LLC): Net interest margin outlook?
  Response: Outlook similar to last quarter's high 3.30s-low 3.40s, around mid-3.40s with quarter-to-quarter variation.

• Question from David Chiaverini (Jefferies LLC): Progress on $100M incremental PPNR and split between '26 and '27?
  Response: Progress continues; more in '27 than '26, building quarter-by-quarter, embedded in 2026 outlook.

• Question from Peter Winter (D.A. Davidson & Co.): Levers for lower Q1 expenses vs Q4?
  Response: Q4 elevated due to higher revenue commissions and true-ups; Q1 seasonal marketing down, plus tech project costs completing.

• Question from Peter Winter (D.A. Davidson & Co.): Any M&A disruption impacting markets?
  Response: Early stage; no integration yet, but recruiting opportunities exist; focus on own business model and culture.

• Question from Michael Rose (Raymond James & Associates, Inc.): CRE inflection expected in '26?
  Response: Inflection likely as construction starts pick up with rate cuts; pipeline up, net increase in CRE commitments for first time in ~2 years.

• Question from Michael Rose (Raymond James & Associates, Inc.): Impact of potential interest rate cap on credit card book?
  Response: Book is small; cap impact roughly $1M per quarter, insignificant.

• Question from Jon Arfstrom (RBC Capital Markets): Anything else for Q1 setup?
  Response: Expect strong Q1 similar to Q4; mortgage warehouse seasonal volatility, fee income uncertain, expenses with normal seasonality and banker additions.

• Question from Jon Arfstrom (RBC Capital Markets): Provision outlook given strong recent quarters?
  Response: Focus on net charge-offs as key credit measure; provision likely stable or with release quarters, but not a primary concern.

• Question from Andrew Steven Leischner (Keefe, Bruyette, & Woods, Inc.): What needed to drop CET1 to 10-10.5% range?
  Response: Economic data playing out favorably and regulatory backdrop; will move in measured steps, primarily driven by economic confidence.

• Question from Andrew Steven Leischner (Keefe, Bruyette, & Woods, Inc.): C&I growth sources outside mortgage warehouse?
  Response: Growth broad-based across regional footprint and specialty lines like equipment finance.

• Question from Christopher Marinac (Janney Montgomery Scott LLC): Will NDFI growth be driven by mortgage warehouse or other lines?
  Response: Higher NDFI growth likely driven by mortgage warehouse, which is larger and safer; other NDFI segments also growing but prudently.

• Question from Sun Young Lee (TD Cowen): Does flattish expense guidance hold at higher end of revenue guide?
  Response: Yes, even at 7% revenue growth, expenses expected flat due to disciplined lending and commission balances.

• Question from Sun Young Lee (TD Cowen): Is mid-single-digit loan growth conservative?
  Response: Disciplined lending approach; economy unlikely to exceed mid-single-digit growth without stimulus, but good opportunities in targeted areas.

• Question from Anthony Elian (JPMorgan Chase & Co): Why didn't fixed income revenue grow in Q4?
  Response: Government shutdown caused significant slowdown in early October, offset by later activity.

• Question from Anthony Elian (JPMorgan Chase & Co): Impact of fixed income commissions on expense outlook?
  Response: Assume 60% commission as revenue increases; countercyclical growth would drive expenses but is seen as a high-class problem.

• Question from Timur Braziler (Wells Fargo Securities, LLC): Does flattish expense imply flattish countercyclical revenue?
  Response: Assume countercyclical revenue balances out, but all models are approximations; commissions from various businesses largely offset.

• Question from Timur Braziler (Wells Fargo Securities, LLC): Loans to mortgage companies growth from new clients or upsizing?
  Response: Growth from both new client acquisition (post-industry disruption) and upsizing with existing clients as volumes picked up.

Contradiction Point 1

M&A Strategy and Timeline

Shifts in the timing and conditions for considering mergers.

In the current M&A environment, are you no longer a potential seller or focusing on acquiring smaller companies? - Benjamin Gerlinger (Citigroup Inc.)

2025Q4: We are increasingly confident in our ability to integrate a well-structured merger... if the right opportunity arises in 2026 or later. - [D. Jordan](CEO)

Are you considering selling the company or focusing on smaller acquisitions? - Benjamin Gerlinger (Citigroup Inc.)

2025Q3: The long-term optionality remains open. - [D. Jordan](CEO)

Contradiction Point 2

Core Deposit Franchise Stability

Contradiction on the health and trend of core noninterest-bearing deposits.

What's driving the 8% core deposit decline over two quarters, and what actions are being taken to stabilize or reverse it? - Casey Haire (Autonomous Research Limited)

2025Q4: The decline was in promotional deposits, not core noninterest-bearing deposits (which actually grew). - [Hope Dmuchowski](CFO)

What's causing the core deposit decline (nearly 8% over two quarters), and what actions are being taken to stabilize or reverse it? - Casey Haire (Autonomous Research Limited)

2025Q3: What is driving the core deposit franchise decline (down almost 8% over the last 2 quarters)... - [Hope Dmuchowski](CFO)

Contradiction Point 3

Outlook on Loan Growth and Pipeline Activity

Contradiction regarding the timing and certainty of increased loan growth.

What is the current status of clients, borrower health, and activity levels, and are there any updates on low single-digit loan growth expectations for next year? - Michael Edward Rose (Raymond James)

2025Q4: The outlook for loan growth remains positive. Improving activity is expected in the back half of 2025 as tariff uncertainties settle. - [D. Bryan Jordan](CEO)

What momentum and loan growth potential do you see in specialty verticals? - John Eamon McDonald (Truist Securities)

2025Q2: The outlook for loan growth remains positive. Good growth and momentum are seen in asset-based lending (ABL) and equipment finance, in addition to strong mortgage warehouse performance. - [Thomas Hung](CCO)

Contradiction Point 4

Expected Timing for Share Buybacks

Contradiction on the readiness and timing to resume share buybacks.

With deregulation progress, can the CET1 target be lowered, and what is the appetite for buybacks given recent stock performance? - Michael Edward Rose (Raymond James)

2025Q4: The company is comfortable repurchasing stock, believes it will create significant value, and has flexibility with its remaining authorization. - [D. Bryan Jordan](CEO)

What portion of the $100 million PPNR opportunity is allocated to revenue versus expenses? - Unidentified Analyst (Barclays, on for Jared Shaw)

2025Q2: Buybacks were paused as loan pipelines built in May. With anticipated loan growth in the back half (excluding mortgage warehouse seasonality), the company expects to spend more on buybacks, though not necessarily all of the remaining authorization. - [Hope Dmuchowski](CFO)

Contradiction Point 5

Economic Outlook and C&I Lending Trends

Contradiction on the impact of economic uncertainty on business loan demand and pipeline.

What trends in C&I lending, particularly borrower sentiment and pipeline impact, are observed amid the current economic pause? - Jon Arfstrom (RBC Capital Markets)

2025Q4: Uncertainty has led borrowers to a 'wait-and-see' mindset... Pipelines are reasonably strong, and the company expects a soft landing and continued stable growth once clarity returns. - [Bryan Jordan](CEO)

How are trends in C&I lending, particularly borrower sentiment and pipeline impact, evolving amid the current economic pause? - Jon Arfstrom (RBC Capital Markets)

2025Q1: Conversations with customers show a wide range of sentiment. The overall impact is a temporary pause, particularly on major investments like CapEx or M&A, due to uncertainty. - [Thomas Hung](CCO)