First Horizon NIM Dips as Deposit Costs Rise
Net interest margin fell 3 bps to 3.49% in the second quarter as brokered deposit costs climbed.
Net interest income for First Horizon (FHN), a regional banking provider, rose $9 million from the first quarter to $679 million. The result came despite a 3 bps sequential decline in net interest margin to 3.49%, due to higher costs associated with increased brokered deposits. On a year-over-year basis, the margin expanded 9 bps to 3.49%.
Balance sheet growth remained steady across both sides of the ledger. Average loan and lease balances increased $1.5 billion from the prior quarter to $64.7 billion, representing a 3% increase year-over-year. Average deposits grew $572 million sequentially to $66.8 billion, also up 3% compared to the same period last year.
Funding costs trended higher during the period. Interest-bearing deposit costs rose 5 bps from 2.28% in the first quarter to 2.33%.
Noninterest income rose $16 million sequentially to $211 million. This growth was primarily driven by an $18 million increase in deferred compensation income and a $3 million rise in brokerage, trust, and insurance fees, though these gains were partially offset by a $7 million decline in fixed income.
Operating expenses climbed $26 million from the first quarter to $531 million. The increase was led by $14 million in deferred compensation and $10 million in outside services. Consequently, the efficiency ratio rose 134 bps to 59.88%, compared to 58.54% in the first quarter.
Credit quality showed mixed signals. The provision for credit losses was $15 million, matching the first quarter but falling 50% from $30 million in the second quarter of 2024. Net charge-offs rose to $33 million, or 20 bps, from $29 million, or 18 bps, in the prior quarter. The allowance for credit losses to loans ratio decreased to 1.24% from 1.28% in the first quarter and 1.42% a year ago.
The CET1 ratio held steady at 10.5% for the quarter, though it decreased 53 bps from 11.0% a year earlier. The bank reduced its pace of capital return, with share repurchases totaling $100 million in the second quarter, down from $233 million in the first quarter.
Return on average tangible common equity grew to 15.2%. This figure represents a slight increase from 15.1% in the first quarter and an improvement over the 13.8% reported in the second quarter of 2024.