First Horizon increased commercial lending during the second quarter of 2026, but the additional growth required substantially more brokered funding, contributing to higher deposit costs and a modest decline in net interest margin.
Period-end brokered deposits increased approximately 47% to $7.8 billion from $5.3 billion in the previous quarter. The increase was driven by $2 billion of additional brokered certificates of deposit.
Total period-end deposits increased by $1.6 billion to $68.1 billion. Because the increase in brokered deposits exceeded the company’s overall deposit growth, declines in other deposit categories partly offset the new wholesale funding.
Customer promotional accounts, certificates of deposit, and indexed deposits declined to $30.1 billion from $31.1 billion. Base-rate deposits remained steady at $14.2 billion, while noninterest-bearing deposits increased slightly to $16 billion.
Average brokered deposits increased by $1.3 billion sequentially. Average total deposits reached $66.8 billion, while average demand deposit account balances increased by $121 million.
The shift toward brokered deposits increased First Horizon’s interest-bearing deposit cost by five basis points to 2.33%. The company said the higher funding costs were the primary reason its net interest margin declined.
Net interest margin decreased three basis points to 3.49% from 3.52% in the first quarter. Deposit funding mix reduced the margin by approximately five basis points, partly offset by benefits from the investment portfolio, trading securities, day count, and other items.
Despite the margin pressure, fully taxable-equivalent net interest income increased $9 million to $679 million. Stronger loan balances provided enough additional interest income to offset the impact of more expensive deposits.
Average loans increased $1.5 billion sequentially, reflecting $1.6 billion of commercial loan growth. Period-end loans rose 1% from the previous quarter and 3% year over year to $65.3 billion.
Commercial and industrial loans excluding loans to mortgage companies increased $710 million, or 2%, to $32.5 billion. Loans to mortgage companies rose by $118 million, while commercial real estate balances increased by $175 million.
The bank’s commercial lending expansion accounted for nearly all of its average loan growth during the quarter. Consumer real estate balances remained approximately unchanged at $13.9 billion.
First Horizon’s loan-to-deposit ratio improved to 96% from 97%, as period-end deposit growth exceeded the increase in loans. However, the heavier use of brokered funding shows the cost required to maintain that balance-sheet growth while preserving liquidity.
The company retained approximately 96% of the roughly $30 billion in deposits that were repriced during the quarter while keeping the cost of those balances flat sequentially.
First Horizon also reported that 67% of its deposits were insured or collateralized. Commercial deposits represented approximately $41 billion, or 60% of total deposits, while consumer deposits accounted for the remaining $27 billion.
The company remains modestly asset-sensitive, with 58% of its loan portfolio carrying variable rates. Another 12% consists of adjustable-rate loans, while 30% is fixed-rate.
This structure means falling short-term rates could reduce income from variable-rate loans before all deposit costs adjust. First Horizon estimated that an immediate 100-basis-point decline in rates would reduce its next 12 months of net interest income by approximately 3.3%, assuming a static balance sheet.
Companywide revenue increased 7% year over year to $887 million. Net income available to common shareholders increased 12% to $260 million from $233 million.
Diluted earnings per share rose 20% to $0.54 from $0.45, benefiting partly from a 7% reduction in the diluted share count. Diluted shares declined to 480 million from 514 million following continued share repurchases.
First Horizon repurchased $100 million of its shares during the quarter at an average price of $24.52 per share. The company had approximately $665 million remaining under the repurchase authorization approved during the fourth quarter of 2025.
The Common Equity Tier 1 ratio remained at 10.5%, consistent with management’s near-term target. Tangible book value per share increased 7% year over year to $14.53.
Fee income increased $16 million sequentially to $211 million, but the headline increase was largely driven by deferred-compensation accounting.
Deferred-compensation income increased by $18 million to $15 million, while deferred-compensation expense increased by $14 million. Excluding deferred compensation, adjusted fee income declined by $1 million.
Fixed-income revenue declined $7 million sequentially to $46 million as average daily revenue decreased 20% to approximately $594,000. Brokerage, trust, and insurance revenue increased $3 million to $45 million, reflecting higher wealth-management production and client activity.
Credit performance improved despite the growth in lending. Nonperforming loans declined to $531 million from $606 million, reducing the nonperforming loan ratio to 0.81% from 0.94%.
The allowance for credit losses declined to $808 million from $826 million in the previous quarter and $901 million a year earlier. The allowance represented 1.24% of loans, down from 1.28% sequentially and 1.42% in the prior-year quarter.
Net charge-offs totaled $33 million, or an annualized 0.20% of average loans. The provision for credit losses remained at $15 million sequentially and declined 50% from $30 million a year earlier.
First Horizon reiterated its 2026 outlook for adjusted revenue growth of between 3% and 7%, excluding deferred compensation. The company continues to expect approximately flat adjusted expenses, mid-single-digit balance-sheet growth, positive operating leverage, and net charge-offs of between 0.15% and 0.25%.
The quarter illustrates the tradeoff First Horizon faces as it expands commercial lending. Loan growth increased net interest income, but the bank relied heavily on brokered deposits to finance the expansion, raising funding costs and preventing that growth from producing a wider margin.
Future profitability will depend partly on whether First Horizon can replace or reduce higher-cost brokered balances through customer deposit growth while continuing to expand its commercial loan portfolio.
KEY QUOTES:
“Our results represent another quarter of disciplined execution. This performance is the result of our focus on developing client relationships and prioritizing and delivering outstanding service.”
“Compared to the first half of 2025, net income available to common shareholders grew 16% in the first half of 2026. This reflects strength across multiple aspects of our business and includes 3% year-over-year loan growth.”
Bryan Jordan, Chairman, President And Chief Executive Officer Of First Horizon Corporation
