FHN - NYSE

Thank you for joining. I would like to welcome you all to the First Horizon Second Quarter 2025 Earnings Conference Call. My name is Brica 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.

Thank you, Brica. Good morning. Welcome to our second 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 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. These are non-GAAP measures, so it's important that you 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, and thank you for joining our call. We appreciate your continued interest in First Horizon. I'm pleased with our results in the second quarter. Our balance sheet growth, credit and profitability were all strong in the quarter. The economy continues to be relatively stable. We are seeing improving customer confidence but uncertainty remains around tariffs, interest rates and the economic outlook. Sitting here today, we believe that the fundamentals in the economy, especially in our southern footprint will remain good for the back half of 2025 and into 2026. Our focus remains on safety and soundness, profitability and sustainable growth. We are pleased to report that our credit trends remain consistently strong. We continue to deliver on our profitability targets with expense and pricing discipline despite increased deposit pressure and competition. And finally, balance sheet growth this quarter is in line with the broader industry trends. On Slide 5, we share a few highlights from the quarter. We earned an adjusted EPS of $0.45 per share, which was a $0.03 increase from the prior quarter. These results reflect pre-provision net revenue growth of $4 million from the first quarter and improving credit conditions. The primary driver of our PPNR improvement was a $10 million of incremental net interest income, which came mostly from our growth -- from growth in our loan portfolio. We also maintained expense discipline with total expenses, excluding deferred compensation increasing by only $4 million from the last quarter. Our credit portfolio remains strong. Our charge-off ratio of 22 basis points remained in line with our expectations coming into the year. We saw a 3 basis point decline to our coverage for credit losses, reflecting the loan balance mix improvements for mortgage warehouse lending growth as well as the reduction in classified loans. This quarter was a solid quarter for our balance sheet with period-end balances for both loans and deposits finishing 2% higher quarter-over-quarter. We are optimistic about our momentum going into the second half of this year. With that high-level overview, I'll turn it over to Hope to run through our financial results in more detail. Hope?

Thank you, Bryan. Good morning, everyone. On Slide 6, you can see our adjusted highlights for the quarter, driving our $0.45 of EPS. On Slide 7, we highlight two notable items totaling $4 million of pretax impact in the quarter. The largest impact was an accrual release in deferred compensation related to a business unit divested more than a decade ago. On Slide 8, we cover our $10 million of net interest income growth and the 2 basis point compression of net interest margin. NII growth benefited from the seasonal loan growth, particularly our high-yielding mortgage warehouse business, which contributed to a 3 basis point expansion of total loan meals. Our margin compression to 3.40 was mostly driven by a 4 basis point increase to interest- bearing deposit costs as we saw a slight increase to our rate paid on client deposits, and broker deposits grew to support loan growth, which was concentrated in mortgage warehouse. On Slide 9, we provide more information about our deposit performance in the quarter. Period-end balances increased by $1.4 billion compared to prior quarter, driven by a $1.6 billion increase in brokered CDs which primarily supported our loans to mortgage companies and offset broader industry trends and reduced deposit supply as deposit flows to other categories like brokerage accounts. We did see growth within noninterest-bearing deposits as period end balances were up $57 million. This growth includes the success of our seasonal marketing promotions, which started in the second quarter. Retention continues to be a highlight for our deposit story as we retained approximately 95% of the $23 billion in balances associated with clients who had a repricing 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 2.76%, up from the first quarter average of 2.72%. Our strong pricing discipline through this interest rate cycle has achieved a 72% interest-bearing deposit beta since the Fed rate cuts began in the third quarter of 2024. Absent additional Fed cuts, deposit pricing will move around slightly quarter-to-quarter, reflecting reductions in deposit supply, evolution of competition and balance sheet funding needs. On Slide 10, we cover our loan portfolio performance. Period-end loans were up 2% from the prior quarter driven by increases in loans to mortgage companies of $689 million. This performance reflects both seasonal trends and the benefit of market share gains that we have achieved in recent quarters. We also saw growth in our C&I portfolio with period-end balances of $316 million quarter- over-quarter. Our CRE balances continued to decline as payoff of stabilized projects continued, including a reduction of nonperforming CRE loans this quarter. As I mentioned on the margin slide, total loan yields expanded 3 basis points from the first quarter due to the incremental balances within loans to mortgage companies, one of our highest-yielding portfolios. On Slide 11, we detail our fee income performance for the quarter, which decreased $3 million from the prior quarter, excluding deferred compensation. Fixed income performance decreased slightly with ADR declining by 6% amidst a less favorable environment. Additionally, non-ADR performed at normal levels after a slightly elevated first quarter. The current rate environment with a flat short to middle part of the rate curve creates a near-term headwind for this business. For mortgage banking, as well as service charges, we saw a decent pickup from a seasonally slow first quarter as spring and summer months tend to see higher client activities in those areas, combining to bring in an additional $4 million of fee income. On Slide 12, we highlight that excluding deferred compensation, adjusted expenses increased just $4 million from prior quarter. Personnel, excluding deferred comp, decreased by $3 million from last quarter, driven by an $8 million reduction within incentives and commissions on seasonality and retention awards being paid out. This was partially offset by a $5 million increase to salaries and benefits based on higher day count, benefits seasonality and continual investment in our associates. Outside services increased by $7 million, with the largest driver being advertising investments related to seasonal pickups and marketing activity. Turning to credit on Slide 13. Net charge-offs increased slightly by $5 million to $34 million. Our net charge-off ratio of 22 basis points of average loans remains in line with our expectations for the year. Loan loss provision was $30 million this quarter, with our ACL to loan ratio declining slightly to 1.42%, primarily due to our growth in loans to mortgage companies. which is a portfolio that carries very little loss coverage as well as reductions in classified loans. This reduction in NPLs represents a 4 basis point decline from last quarter and was partially driven by nonperforming CRE payoffs. We remain extremely proud of our credit culture, years of disciplined underwriting provides stability for our performance across economic cycles. On Slide 14, you can see that we maintain capital levels in line with our near-term target of 11% CET1. As we have mentioned before, our priority for capital deployment is organic loan growth, which we saw this quarter. We retained just over half of our $1 billion share repurchase authorization after using another $9 million in the second quarter, which provides flexibility in achieving our CET1 target over time. Our near-term target for capital remains unchanged at this point and we will continue to have conversations with our Board to determine the right time to adjust capital levels to achieve our long-term goals. On Slide 15, a we take another look at our full year 2025 guidance. Our goal for revenue and expense remains achieving PPNR growth, and we fully expect to hit this target. Our range for total revenue remains unchanged, and our performance is in range so far this year, achieving the upper end of the range, we need to see continued NII momentum as well as significant pickup in our countercyclical businesses. Following another quarter of successful expense management and lower commissions in countercyclical businesses, we have made an adjustment to lower our expense range to flat to up 2%. Our outlook for charge-offs, taxes and capital remain unchanged as our performance to date and rest of the year expectations fall within these ranges. I'll wrap up with Slide 16. Over the next 2 to 3 years, our target is still to reach and maintain a 15% plus ROTCE An important key to achieving these levels of profitability is the ability to operate efficiently and profitably. As we recently announced we see opportunities to grow our PPNR by $100 million or more over the coming years within our existing businesses through execution on identified synergies and deepening our client relationships. We still believe that long-term capital management and a prudent credit culture are important drivers to maximizing our profitability, and we expect to capitalize on our years of focused performance to deliver these returns. Now I will give it back to Bryan.

Thank you, Hope. As we close out another quarter, I'm incredibly proud of the focus, dedication and resilience to our associates to continue to show I'm extremely proud of the strong foundation that we have in place. We continue to make significant progress in enhancing our organization, streamlining our go-to-market strategies, deepening collaboration between teams and ensuring we are best positioned to capitalize on our opportunities. . Over the last few quarters, we have further aligned the organization around common go-to-market strategies and clarity around our value-add to clients and how we deliver that value across all conditions. The results of this focus will help us drive towards the 15% plus ROTCE that we expect to see in the next 2 to 3 years. As Hope highlighted, in addition to normalized capital and provision levels, we see over $100 million in pre-provision net revenue opportunity in our existing book of business through consistent execution of our business model. With this disciplined execution, our balanced business model and unwavering focus on client needs, I am confident that First Horizon is exceptionally well positioned to capture the opportunities before us. Thank you to our associates for their hard work and to our clients for their continued trust in First Horizon. Brica, with that, we can now open it up for questions.

[Operator Instructions] Your first question on the line comes from Michael Rose with Raymond James.

Just wanted to get, Bryan, just some background and color as to where clients stand at this point. I think we're seeing a little bit better loan growth. It was good to see the decent C&I growth this quarter. CRE was down a little bit, but I think we're hearing more and more banks talk about CRE opportunities and especially on the construction side as well. Can you just give us a sense -- I know utilization was flat, but just where the health of the borrower is and if you are starting to see increased activity? I know you have -- you talked about kind of low single-digit loan growth next year. So any updates to that as well would be great.

Yes. Sure, Michael. Thank you. The borrower is remarkably resilient, and customers are in a very positive place right now. If you were sitting here 90 days ago, we would had a more significant evaluation. But it's interesting, borrowers have been very resilient. They process through some of the early impacts of tariffs and how that's going to affect business or laying in more and more to opportunities. It's not as all things, there's different places on the spectrum that people are, but we see increasing optimism and we're likely to see, in our view, improved activity over the back half of this year as some of these tariff questions get further settled over the next 30, 60, 90 days. And we think borrowers are generally excited about the opportunities in front of them, and we'll continue to invest.

Great. And maybe just as one follow-up. I think we've seen a lot of progress on the deregulatory front. You guys still have the CET1 target of 10.5% to 11%. Is there any chance that, that could be kind of moved down and then just crossing that with the fact that the stock has done pretty well here recently, the earn-back on the buyback is getting a little longer. Just wanted to gauge your appetite for buybacks as we move forward.

Yes. We've -- this is a process that we go through and we work through it with our Board, we complete annual stress testing. I would say that the results of the CCAR process with the largest institutions was generally favorable and you saw, I think, a more positive regulatory outcome in that regard. And I expect that over time, we will be able to move those capital levels lower. We will continue to evaluate economic conditions. We'll continue to discuss it with the Board, and we'll continue to juxtapose it against what we expect in terms of growth in the balance sheet. That said, in the absence of organic opportunities for us to invest, i.e., loan growth, we certainly are comfortable repurchasing our common stock. We do believe that we will create significant value over the next several years. And even at these higher levels, we think that there is value in our repurchase program. and that as we drive towards this 15-plus percent ROTCE, that, that value will move up. So we think we have lots of levers. We think we start with a very strong capital position, and we think it gives us tremendous flexibility as we look at the back half of 2025 and into 2026.

Your next question comes from Chris McGratty with KBW.

This is Andrew Leischner on for Chris McGratty. I know you've had strong deposit pricing so far this cycle. And I know this quarter ticked up slightly on the brokered to fund mortgage warehouse. But do you see any incremental deposit repricing opportunities going forward?

Chris, I do see deposit repricing opportunities going forward, but I think that they could possibly be up or down. The forward curve is a big impact to how deposit competition is heating up. As we see that first cut move out, people are willing to guarantee rate and term. As I mentioned on our first quarter call, we weren't seeing much competition. We weren't seeing guarantees that were out there past 30 or 45 days. We're now competing in an environment where we're seeing competition that's guaranteeing rates at just slightly below the current Fed fund raise and guaranteeing them for 6 to 9 months. And although we're going to continue to keep walking back our current clients when we bring new-to-bank clients and with that promo, we have had to slightly uptick our current client promotion in order to achieve that 95% retention we want on client money. And so as I've said multiple times, I think that this deposit repricing cycle will be a little bit more of a zigzag than a typical hockey stick where as you saw last quarter, we were able to significantly bring it down this quarter, we gave away a couple of basis points. I think as we see that cut come into expectation, we do see one come in, in September, we'll be able to continue to walk that back and the pace of cuts will make a difference for how quickly we can walk back deposit pricing.

Andrew, I'll add to that. We clearly saw a pickup in deposit competition across the second quarter. And that really fits with what is a contracting Fed balance sheet, which contracts supply money. It fits with our longer-term view that with the ease of transferring money with digital tools, for example, across multiple platforms, the deposit costs are going to have a slow migration up over time. That said, we work really hard in our markets with a lot of day-to-day interaction with customers to create win-win situations where we price deposits attractively for our customer and build strong long-term relationships. And at the same time, do it in a way that creates profitable long-term value for our First Horizon shareholders. I think as you look at the next several quarters, I would not sit around and say there ought to be a wholesale objective to raise or lower deposit costs. I think it's about creating value for our customers and our shareholders by building those long-term relationships, recognizing that we're not playing solitaire in the marketplace. And that there are a lot of forces in play and a lot of people opening de novo branches and advertising exceptionally high rates and things of that nature. And I think our bankers have done a very nice job over the last 90 days, the last 2 years to be more expansive and managing through a changing deposit environment, and we'll continue to deal with it in a very proactive way.

Great. That was really helpful. And then just one more for me. Credit remained strong and within your guided range, but can you speak to any verticals or geographies that you're seeing the signs of stress in or more concerned about right now?

Yes, I'm happy to take that one. It hasn't really changed significantly from what we've discussed in the last couple of quarters. It's generally speaking, on the C&I side, more the consumer-facing type of industries. So for example, trucking, auto finance, consumer finance, those are the ones I'm watching more closely. And then on the CRE side, it's generally speaking, where we're seeing great migration is more so on the multifamily side. And what that is being driven by is really more so what we believe a shorter-term problem in terms of a lot of multifamily inventory coming online within the last few years, and hence, absorption is slower than expected, but we expect that to resolve over the next few years.

We now have Jon Arfstrom with RBC Capital Markets.

Hope, what kind of expectations do you have for mortgage warehouse balances? You've got a big step up in period end versus average, and it's been a really strong business for you. But do you expect this to continue into Q3? Do you expect to retreat in the balances?

Jon, I do expect in Q3 that we'll be at this level or higher. I want to give you a different answer yesterday and this morning when I saw how bad the mortgage data was just from last week. So I guess the question is, is that a 1-week trend? Or are we going to see continued decreases in mortgage originations? But mortgage warehouse has been a strong growth story for us for multiple years as we continue to commit to our existing clients and pick up new clients. We're still adding new clients into that business every quarter. We just increased some lines and brought some new clients on in the last quarter. I think we'll continue to see momentum in that in line with how the mortgage industry for purchases and refis are trending. If it trends up. I believe our balances will be up and if it stays stable, we'll continue to see that momentum about where it is today.

Yes. And Jon, I would add. There's always going to be seasonality to that business with home buying season. But in addition to winning some clients, I think what we've -- what has really helped drive our growth and shown our success in this sector is we've continued to gain more share, especially with our existing customers who have access to multiple lines across multiple banks. But because of our execution and service within specific customers as they grow, we're also getting a larger share of their businesses, and that's partly what you're seeing as well.

Yes. Okay. That's helpful. And then, Hope, for you, maybe just a simple question. The adjusted expense guidance, does that -- does the high end of the revenue range -- if you hit that at 4%, does that equate to hitting 2% of expenses? Or if things are higher on the revenue trend, you might have to adjust that back higher again on expenses?

Yes. I don't see us having to go above 2%, Jon. We did do a lot of sensitivity analysis on what could our countercyclical businesses do and what would the commission be. So if we were to hit the higher end of the revenue, I still believe that we will be under that 2%. If we're at the lower end, you'll be closer to that flat expense guidance that we're giving now.

We have a question from John McDonald with Truist.

Got a follow-up question on loan growth. What are you seeing in terms of momentum and the potential for loan growth in some of your specialty verticals?

Sure. John, I can help address that one. On the -- we are seeing good growth on the regional banking side, but your question regarding specialty lines, we talked about mortgage warehouse a lot but beyond that, we actually saw pretty good growth and momentum from both our ABL line as well as equipment finance. There's good pipelines in those and good momentum overall across a lot of businesses, but I'll especially highlight those two.

Okay. And Tom, maybe on CRE, what's the dynamic you're seeing between new business in your pipelines versus continued pay downs there?

Yes. I mean as you saw, our CRE balance did decrease in the second quarter. Now I would say that's actually a pretty good story because what we saw in CRE was a lot of improvement in terms of working through our classified assets. Just in CRE alone, we had about $125 million in upgrades from classified as well as about $125 million in payoffs. And as far as new business opportunities. our pipeline in CRE is slightly down, but I don't think that's unexpected given our focus on construction, especially the multifamily sector. And then as I mentioned, with what's going on in inventory in the Southeast right now, it would make sense that new stocks are down a little bit.

We have Ebrahim Poonawala with Bank of America.

This is Eric on for Eb. Wanted to follow up on the expense guide kind of as it relates to fee income. Even at the low end, you kind of have a step function in expenses here. I wanted to talk about if there's any downside there and kind of trends you're seeing on the fee income side as it relates to kind of hitting that upper end of the expense guidance?

Yes. Our fee income this quarter, as we mentioned in our prepared remarks, is down in ADR, 6% quarter-over-quarter, and this is our lowest ADR quarter in a year now. We've seen it a strong Q4, which we thought was going to continue, and we haven't seen, as we mentioned, there's a lot of dynamics for the FHN Financial that impacted. But right now, it's the shape of the curve that's having a little bit of a downward pressure on their ADR. As we look at the expense guidance, we do have additional investments in marketing and advertising that are coming in. We typically see Q3 be a higher expense quarter for advertising, specifically related to promotions right now for checking accounts, there's a cash offer. It takes time to earn that. Those will get paid out at the end of Q2 and Q3. We also have some of our technology investments that are now hitting our run rate. Exciting news. We closed this quarter, all the financial statements you have is on our brand-new general ledger. So that project is starting to amortized through. We finished a couple of other large projects. So there's just some increases that are coming into the run rate in the second half, both seasonally and as we continue to invest in the organization. But I do believe that, that higher end of the 2% as I said before is if our commission businesses significantly pick up here getting into that higher $600,000 or $700,000 ADR range for the future quarters.

Got it. Yes, glad to hear about the general ledger. I know we've heard about that for a while. I guess the second is just one more, I guess, on the buyback, a very different quarter than first quarter. How do you feel about -- do you expect to use the remaining authorization kind of in the coming quarters? Or is it very market-dependent on how loan growth trends?

It really depends on our loan growth story. We talked about $9 million of purchases. I'll tell you those all were done early in the quarter as soon as we came out of the blackout period as we had negative loan growth last quarter. We got back into purchasing our shares every day after earnings. And as we got into May, we started to see our pipeline really build. We started see fund up of existing lines, and so we stopped our share buybacks. We monitor on a weekly basis of where do we think our loan growth is going to be first and then how do we deploy that excess capital into buyback. We are anticipating that we will continue to have loan growth in the back half of the year, excluding the seasonality of mortgage warehouse. So I don't know if we'll spend all of it, but I do expect that we will spend more into it as we continue to have strong earnings growth and moderate loan growth in the back half of the year.

We have Jared Shaw with Barclays.

This is John Ron on for Jared. Just quickly on the $600,000 to $700,000 ADR comment, is that what you're expecting for the second half of the year? Or is that like a longer-term target?

Yes. That was about commissions. What would it take to get the higher end of the expenses was the question that we need to increase our ADR about 200 -- $150,000 to $200,000 to hit the high end of that guidance. As we think about our FHN Financial business, we say it's about a 60% expense ratio. And so if you think about adding $100,000 a day, how that would impact your expense line is about a 60% commission. We do not have expectations that this time of the market is going to improve that much in the back half of the year, but the market continues to change day by day and week by week. And so we saw some stabilization in the equity market. We saw the forward curve starts to steepen without that middle part being where it is today. We could see weeks or months at that. But at this point, we don't -- that's not part of our guidance. But that is why we still have the high end of the revenue range if we start to see some pickup in that business in the back half of the year.

I'll give you a couple of data points to give you some sense of how difficult it is to forecast. Roughly 2 weeks in the month of July, so in the month of the third quarter. One month, we were a little -- excuse me, 1 week, we were a little over $700,000 in ADR, the next week we're a little over $450,000 in ADR. So there is a lot of volatility it has to do with the headlines, what's happening with interest rates, what's happening globally. And the second quarter was very volatile and our crystal ball as we look into the back half and what's going to happen in terms of tariffs, interest rates, bid policy, all of that has gotten fuzzier, not clear. And so it's really hard for us to try to pin the number down with any real high degree of precision. That's why Hope has giving you the range as she has.

Okay. Great. And then I guess, on the $100 million PPNR opportunity that's been talked about, I'm wondering how much of that is on the revenue side versus the expense side? And is that mostly driven by, I guess, would the revenue side be more driven by fees than NII, just some more examples of what's behind that $100 million number?

Yes. The majority, if not all of that $100 million PPNR is deepening our relationships with our clients. So that is increasing our loans to them, getting more deposits from them. We have a big focus, we've talked about many times on our treasury management program. We converted our systems at the beginning of this year. We've invested in bankers in that business. And we're continuing to look at our current client base that we don't have treasury management and deepen that relationship. Fee income can also be a part of it, but that really is how do we get our current client, how do we have deeper relationships with them that are more profitable for First Horizon.

We think there are a lot of benefits still for us and what I've talked about in my prepared comments of a really making sure that we're very effective in our go-to-market strategy across the entire franchise that we continue to invest. And as we look at our book of business, the opportunity to drive greater value for our clients and at the same time, create enhanced returns for our shareholders. We think there's a huge opportunity in the southern footprint. And so we think, as I said, back in the spring, it's $100 million plus. And we think there's a lot of opportunity there.

Your next question comes from Christopher Marinac with Janney Montgomery Scott.

Bryan, and this may be for Tom as well. When you look at your loans to other financial intermediaries, I know the large majority is to the mortgage channel. For the other smaller component, is anything interesting there for future growth? Are there opportunities to do treasury management services with those type of other players in the financial ecosystem?

Yes. Sure. Christopher, I can address that one. Outside of the loans to mortgage companies, we do lend into NDFIs and as well as I mentioned, consumer finance that's always been a core part of especially our ABL business. I think the performance has been relatively good, except for obviously, there's some softness due to the economic uncertainty right now. In terms of treasury management opportunities specific to those businesses, it's actually fairly minimal. Those are generally more lending opportunities but high-yielding lending opportunities.

Great. And Bryan, from me, I guess, a large perspective, do you see opportunities where M&A from other banks is going to create opportunity for you in this next year? Or do you think that's a little further ahead?

I know everybody when they see a deal in the market says that's going to create a lot of opportunities. I think there's a lot of opportunity. It's just due to change in the industry at any given point in time. I think M&A is likely to pick up given the example we saw earlier this week, it's really hard to target where and when. But everything that I see and hear anecdotally in terms of the regulatory approval process, confidence around time lines, things like that lead me to believe that you'll probably see some pickup. And I think change in any marketplace, changing the environment creates opportunity. But as I said in answer to a previous question, just the opportunities we see to standardize, streamline that go-to-market strategy, how we deliver value for our customers, our clients. All of that coupled together, I think, presents really nice opportunities for us, coupled with a high-growth footprint.

We now have Anthony Elian with JPMorgan.

Maybe for Hope. You reduced your expense outlook tied to lower commissions, but left the revenue guide change. Is it fair to say that the mix of revenue growth you expect for this year is now skewed more towards NII rather than fee income compared to a quarter ago?

Anthony, absolutely. When we came into this year, our guidance included multiple rate cuts, but we have not seen one yet. And so we are seeing stronger NII in the first half of the year. We're not anticipating a cut until September at this point in our guidance outlook. And that is allowing our NII to stay higher and that is what's keeping our countercyclical business is lower. And so as we did not reset the revenue side, there is still a possibility that we could get to the higher end. But as commissions are paid out for those countercyclical businesses, it is a monthly quarterly plan. And so the savings in the first half of the year in that commission guidance that we originally had won't be spent.

And then my follow-up, just on the additional $100 million incremental opportunity for pretax income. Do you have all of the I guess, any incremental tech build infrastructure? Is that all in place to be able to support the incremental opportunities you'd expect from -- you mentioned earlier, increasing loans, getting more deposits, more treasury management. Is that all built out to support the incremental pretax income you'd see?

Great question, Anthony. And yes, that is built out and a lot of this incremental revenue we're talking about is tied to our 3-year investment into technology, into better systems, new platforms and additional capabilities for our clients. So they go hand in hand. As we've talked about our 3-year tech investment road map, we said the project -- every project that comes forward and comes through our Board for funding, we have an investment board that looks at all of our tech projects. It comes with either a business case that drives revenue that we then track the businesses to or come to the cost save which we also track the businesses too. So the tech investments, we're starting to see the benefits on the expense side, and we're starting to see the opportunity on the revenue side start to open up now.

[Operator Instructions] And we have Nick Holowko, with UBS on the line.

I appreciated all your thoughts on the buyback and how you're thinking about evaluating the right level of CET1 in the future. But I'm just curious if you have any updated thoughts on the regulatory development of the past couple of months and whether there are any proposals either in the works or that could be on the horizon that might change the way you're thinking about other uses of capital?

Yes, this is Bryan. I think it's early to reach conclusions about where the regulatory evolutions are likely to occur. But it does appear that there are some positive, if not very positive developments around potential greater tailoring as it relates to bright lines around $100 billion, for example, opportunities for improved processing of M&A applications and things of that nature. I think in the short run, it probably does not change the way that we think about capital and capital deployment in the organization. We are very committed to growing organically in this 12 state footprint that we have, principally a southern footprint that has very strong growth dynamics. We think it gives us in all likelihood, the flexibility as the largest players bring down capital levels. We think that will be positive to mid and smaller organization, midsize and smaller organizations as well. And I think we're going to have plenty of opportunities to deploy capital in our business and in our footprint. As I said earlier, we are completely comfortable in looking at opportunities to buy back the stock. And as Hope said a couple of different ways. We have plenty of authorization that we can use to execute upon that. If your question is -- asking about or referring about M&A opportunities, I think nothing has really changed in our view. We think there is a tremendous amount of opportunities. We've mentioned a couple of different ways, the footprint, $100 million of improved profitability. And we want to move those things down the road before we get focused on anything else. And so who knows how things play out over a 2- or 3-year period. But in the short run, we're very, very focused on deploying capital and growth in the business. We're focused on capitalizing on the customer client opportunities we have in our footprint. We use our buyback where appropriate. And then we'll deal with regulatory changes as they get finalized, implemented over the next couple of years.

Perfect. Appreciate the color. And then just maybe as a follow-up, thinking about the direction of the margin and NII over the next couple of quarters here. Any color you can give on the trends you're seeing on loan repricing and any spread compression that you might be observing in the market?

I'll start. It's gotten to be as I said earlier, much more competitive on the deposit side. It's gotten to be much more competitive on the lending side. And I would say that we are seeing greater competition on both price, i.e., lower spreads and on the structure side in the marketplace. And I think that is a reflection of a number of things many of them would be positive in my view. One is I think people have greater confidence in the likelihood that we're going to navigate through the changes that are going on in the economy. And so I think people see positive outlook; two, is still relatively slow, but borrowers are starting to lean in, and they have a lot of competitors for their lending business. So in general, I think the spreads in the lending businesses will not be widening out significantly. I do think that it will be a very competitive marketplace as it has been for years and years and years, but it's picking up the competition in the back half of this year, in my view, is likely to be greater than it was in the first half or in 2024 for sure.

We have no further questions. So I would like to hand it back to our CEO, Bryan Jordan, for some final closing comments.

Thank you, Thank you all for joining our call on this very busy morning. I know there are a lot of releases going on. We appreciate your time. We appreciate your interest in First Horizon. If you need additional information or you have follow-up questions, please reach out to any of us. We'll be happy to try to get that information for you. Thank you again for your interest in First Horizon. I hope you all have a great day.