Participants

Natalie Flanders; Senior Vice President, Head of Investor Relations; First Horizon Corp

Bryan Jordan; Chairman of the Board, President, Chief Executive Officer; First Horizon Corp

Hope Dmuchowski; Chief Financial Officer, Senior Executive Vice President; First Horizon Corp

Thomas Hung; Senior Executive Vice President, Chief Credit Officer; First Horizon Corp

Ebrahim Poonawala; Analyst; Bank of America Securities

Michael Rose; Analyst; Raymond James Financial, Inc

Jon Arfstrom; Analyst; RBC Capital Markets

Jared Shaw; Analyst; Barclays Capital, Inc.

Samuel Varga; Analyst; UBS Securities LLC

Christopher McGratty; Analyst; Keefe, Bruyette & Woods, Inc.

Timur Braziler; Analyst; Wells Fargo & Company

Christopher Marinac; Analyst; Janney Montgomery Scott LLC

Presentation

Operator

Good morning all and thank you for joining us for the First Horizon third-quarter 2024 earnings conference call. My name is Carly, and I'll be your coordinator for today. (Operator Instructions)
I'd now like to hand over to your host, Natalie Flanders, Head of IR to begin, floor is yours.

Natalie Flanders

Thank you, Carly. Good morning. Welcome to our third quarter 2024 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. These are non-GAAP measures. So it's important for you to review the GAAP information in our earnings release and on page 3 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 turn things over to Bryan.

Bryan Jordan

Thank you, Natalie. Good morning, everyone. Thank you for joining our call. Before we get into the details of the quarter. I want to express our concern and support for those who were impacted by Hurricane Helene and melt. I'm incredibly proud of our team, how our team prepared for and responded to the needs of our associates, clients and communities.
We were on the ground immediately providing food, water, fuel and other essential supplies. In North Carolina and Tennessee. All but one of our banking centers are back open with mobile banking units on site there to provide continuous banking services to our clients.
Florida is in the early stages of recovery but our banking centers fared well and all are open at this time. We've also announced financial commitments to the restoration of these communities and will remain heavily engaged in the rebuilding process.
On slide 5, we have shared some of the financial highlights for the quarter. First Horizon delivered another strong quarter for our shareholders. As we grew revenue, maintained expense discipline, improved credit coverage and continued to generate capital. Our results this quarter reflect the strength of our diversified business model and our continued focus on growing and deepening client relationships.
We achieved an adjusted EPS of $0.42 per share which was the $0.06 increase from the prior quarter. Pre provision, net revenue increased $11 million, improving our adjusted return on tangible common equity to 13.2%.
We continue to deploy capital through share repurchases buying back $75 million of stock in the third quarter and over $440 million year-to-date, we ended the quarter with a common equity Tier 1 ratio of 11.2%.
Our results continue to demonstrate the benefit of our disciplined credit culture as we saw just $24 million or 15 basis points of net charge this quarter. I'm proud of the dedication -- that our bankers display and serving our clients and communities throughout the Southeast. I believe we are well positioned to capitalize on our attractive footprint and opportunities to grow along with these markets.
As we head into next year, I remain incredibly optimistic that our franchise is fully equipped to navigate any economic environment we encounter, while continuing to enhance shareholder value.
With that, I'll hand the call over to Hope to run through our financial results in more detail. Hope?

Hope Dmuchowski

Thank you, Bryan. Good morning, everyone. On slide 6, you will find our adjusted financials and key performance metrics for the quarter. We generated adjusted earnings per share of $0.42 a $0.06 increase from prior quarter. Pre provision net revenue improved by $11 million from last quarter. Largely due to strong performance from our fixed income business. While our net interest income and adjusted expenses remained essentially flat.
We continue to see solid credit performance from our portfolio with net charge offs of 15 basis points and $35 million of provision expense. ACL coverage increased modestly to 1.44% including $8 million of qualitative reserves for potential losses related to Hurricane Helene.
The improved revenue and lower reserve build drove an increase in our adjusted return on tangible common equity to 13.2%. Our CET1 ratio increased to 11.2% modestly above our 11% near term target driven by lower than expected risk weighted assets due to a late in the quarter portfolio sale.
On slide 7, we outline a couple of notable items in the quarter which reduced results by $0.02 per share. Third quarter, pre-tax notable items include a $2 million credit to expenses that was chewed up to the FDI special assessment accrual.
A $15 million of visa derivative valuation expenses related to the escrow funding that occurred in September and lastly $2 million of restructuring expenses associated with the operational efficiencies, we have continued to identify. All of this totals an $11 million reduction to net income.
On slide 8, you will see that NII of $631 million was relatively stable to the prior quarter. Benefiting slightly from a higher day count. The net interest margin compressed 7 basis points from the last quarter to 3.31% with better asset yields partially offsetting higher deposit costs.
The increase in average deposit cost was driven by higher use of broker deposits as well as acquisition costs on the $1 billion of new client groups. Loan yields expanded 3 basis points from second quarter, benefiting from new and renewing floating rate spreads and repricing of fixed rate cash flows.
As we move into the fourth quarter, we expect modest margin contraction due to the lag between the loan and deposit repricing.
On slide 9, we take a closer look at our strong deposit group. Period end balances increased 3% with client acquisition driving almost $1 billion of growth. We are also pleased to see that non-interest bearing balances have continued to remain relatively stable over the last few quarters.
The average rate paid on interest bearing deposits increased to 3.44% from the 3.35% spot rate we saw at the end of June. This was driven in part by the higher use of burgers deposits as seasonality and loan to mortgage companies drove a higher need for funding.
Deposit costs are already beginning to improve, with the interest bearing spot rate declining to approximately 3.33% by the end of September. Partially due to the $9 billion of deposits which are market index. Deposit rates have declined another 5 basis points in October with the spot rate today of 3.28%.
We will continue to make progress on repricing the deposit portfolio as we have approximately $18 billion of promotional deposits that are set to reprice over the remaining of the year. In addition to the $1 billion of brokered CDs that are maturing.
On slide 10, we have an overview of loans. Average loans were up 1% from the prior quarter driven by seasonality and loans to mortgage companies. Period end loans declined 1% or $335 million from last quarter. This included an opportunistic sale of approximately $340 million. As we exited the sponsored health care lending vertical. The portfolio consisted of approximately 20 relationships of higher leverage, low past graded health care loans. We do not have the intent to sell any other loan portfolios in the foreseeable future.
After a fund up -- after a period of fund up in our commercial real estate portfolio, the balances in this portfolio have stabilized. As previously mentioned loan yields were up 3 basis points from second quarter due to wider spreads and fixed cash flow repricing.
As we move into the fourth quarter, loan yields are likely to decline as 56% of our loan portfolio is indexed to short term rates.
On slide 11, we highlight the increase in fee revenue we saw in the quarter. The income excluding deferred compensation increased $11 million from the prior quarter. Average daily revenue in our fixed income business improved 22% to $593,000 driving a $7 million increase in fee income. July was a relatively muted month. However, as the market's confidence and rate cuts increased, we saw increasing momentum in the business in both August and September.
Lastly, other non-interest income increased $5 million due to some non-recurring items including securities and other gains, higher federal home loan bank dividends and BOLI benefits.
On slide 12, we show that excluding deferred compensation adjusted expenses decreased by $1 million. Personnel excluding deferred comp was down $1 million from prior quarter as a reduction in incentives and commissions offset the impact of a higher day count on salary expense and elevated medical expense.
The $2 million reduction to incentives included the continued step down in retention awards that took place at the end of the second quarter and outweighed the incremental incentives associated with the higher fixed income production.
We are constantly evaluating options to approve, improve operational efficiency. This quarter, we implemented two items that impacted head count. First we optimize the retail staffing model across our footprint to more efficiently serve our clients.
We also recently outsourced our property management functions which lowered head count and salary spent but will be offset by some incremental occupancies cost. We expect this to make our building support more efficient while providing a better experience for our clients and associates.
Moving down to occupancy and equipment. There was a $2 million increase driven by our new property management engagement as well as incremental software maintenance and depreciation from our strategic initiatives. Offsetting the increase is a $2 million reduction to outside services driven by lower advisory services as certain strategic initiatives enter the production phase.
I'll cover credit on slide 13 which continues to perform very well. Net charge offs decreased by $10 million to $24 million or 15 basis points of average loans. Loan loss provision was $35 million this quarter increasing ACL coverage to 1.44%.
The $11 million of reserve bills included $8 million of qualitative reserves related to Hurricane Helene as well as the impact of continued grade migration which was partially offset by improved economic scenarios. Non-performing loans increased $4 million with an increase in C&I slightly exceeding declines in consumer and commercial real estate.
We remain optimistic that our clients can navigate to a soft landing at 63% of commercial NPL are still current on their payments. Overall, we are very pleased with the continued strength of our portfolio through a high rate environment and expect to see continual improvement if rates do continue to decline.
On slide 15, we'll talk through our outlook for the remainder of the year. What we have laid out here is consistent with the guidance we gave last quarter though we are now focusing more on total revenue versus the individual components.
We believe total revenue will be flat to up 2% year-over-year with the composition driven by what the FED chooses to do over the next couple of months. Our Counter-Cyclical businesses are a natural hedge against our asset sensitivity. If we see incremental declines in interest rates, those businesses revenues will offset that incremental and NII pressure.
Turning to expenses, our guidance remains unchanged as we remain committed to continuing to identify efficiencies to help offset our investments. For net charge off, you can see that we are trending favorably to our guidance, but we have left the range unchanged until we have more information on the potential for the losses that could arise from the recent weather events in our footprint. Lastly, we continue to target an 11% CET1 ratio near term.
I'll wrap up as you turn to slide 16. I am proud of all the progress we have made as a company so far this year. We are focused on improving profitability while making the strategic enhancements needed to set us up for success as we continue to grow the franchise.
As a leadership team, we remain extremely optimistic about the future of First Horizon and are excited to continue delivering value to our shareholders in a premier banking experience for our clients.
Now I'll give it back to Bryan.

Bryan Jordan

Thank you, Hope. Many of you have heard me say that our goal is to stack one good quarter on top of the next. This quarter added momentum to that track record and puts us one step closer to achieving our longer term return goals.
As an organization, we are intently focused on execution. We aim to improve revenue through client growth and retention, while maintaining expense discipline through operational excellence. We will continue to align capital and resources with the greatest business opportunities while enhancing our technology capabilities to deliver exceptional client experience.
I remain confident that our diversified business model, including our well established Counter-Cyclical businesses will allow us to continue to deliver strong shareholder value over the remainder of 2024 and in the next year. Our associates dedication combined with our attractive footprint and extraordinary client base positions us to build an unparalleled banking franchise in the Southeast. Thank you to our associates for all that you do for our clients communities and for each other.
Carly, we can now open it up for questions.

Question and Answer Session

Operator

Thank you, Bryan. (Operator Instructions)
Ebrahim Poonawala, Bank of America.

Ebrahim Poonawala

Hey, good morning, I guess. Maybe, Brian, Hope. But so -- it makes sense in terms of talking about total revenues versus NII fees, given the cyclicality of your businesses. But just talk to us, I guess the question is at least in the very near term NII, I think, I hope you mentioned so much in compression over the next quarter or two will impact NII?
When we look at the fixed income business, the $47 million in fees this quarter, is it as good as it gets in terms of the upper bound on this or what's like, we've seen a fair amount of bond book restructuring that banks rates got cut or is there another leg higher to go on additional rate outlook certainly? We would love for you to address that.

Hope Dmuchowski

Good morning, Ebrahim. This is Hope. Happy to answer that question. I mentioned in my comments that we saw a very muted July. So we absolutely think we see some upside if we continue to see rates decline as September and August were much stronger than July and we've seen strong momentum ending the quarter.
The one thing you mentioned was, where people still buying? we had a conversation with our business the other day, if rates go down another 75 basis points this year, they've already talked to some clients that locked things in earlier this year, late last year that are thinking about restructuring again. And so I do think there'll be continued momentum in a decreasing rate environment.

Ebrahim Poonawala

Understood. And just the other question was around the loan to deposit ratio. I think you call out the decline from 97% to 94% partly driven by the some of the actions you took during the quarter. I know we've talked about this in the past.
Just remind us when you look at the 94% loan to deposit ratio, is there a certain level to which you're managing to? And as a result is that kind of making a little bit more cautious in terms of how quickly you flex deposit pricing lower?

Hope Dmuchowski

We continue to monitor our loan to deposit ratio, but we also monitor our loans plus securities to deposit ratio. We run a much smaller securities portfolio than most of our peers. And you know, our belief is that as much as we can use deposits to help our clients, that's where we want to put it first. As we move forward, we continue to see loan to deposit ratio does tend to change as we have to fund up mortgage warehouse. You'll see we did put additional broker on.
We're comfortable generally we're with where it's at in the near term. But of course, we want to continue to work it down over time. I would say it's not the biggest piece of our competitive pricing. What we're trying to do is defend our home front. We want to make sure that clients that are with us, are staying with us.
And so I would say, the new to bank absolutely comes in at a higher rate, but it's really the back book and the current clients that are being made offers by other banks that are out there looking for the same deposit growth that we're looking for and to retain them in order to continue to have deposit growth quarter-over-quarter does come in a little bit higher of a premium.

Bryan Jordan

Ebrahim, I'll add, we look at our deposit activity and deposit pricing largely through the customer acquisition lens. We don't think about it in a significant way around loan to deposit ratio. So while that is important over time, we look at growing customer relationships and you'll know we grew customer deposits by 3% during the course of this quarter, about $1 billion dollars or so on the customer side.
And, we want to continue to grow in what are very attractive footprints with high quality customer relationships. We're pricing attractively versus wholesale funds and we're pricing attractively to gain market share. So while the two are somewhat related, we spent more time focusing on how do we grow our customer relationships particularly and in our retail, private client high net worth businesses.

Operator

Michael Rose, Raymond James.

Michael Rose

Hey, good morning, everyone. Thanks for taking my questions. Hope, I just wanted to dig into your comments on the margin a little bit. Certainly understand a little bit more pressure in the fourth quarter just given the mismatch of timing that you referenced.
But as we think about the margin into next year with some of the tailwinds, as you mentioned, on the deposit side, some additional repricing opportunity, I think, the slides mentioned a chunk of deposits that was eligible for repricing $18 billion of promotional clients deposits that are eligible for pricing in the fourth quarter.
Are we at a point where the fourth quarter do you think is the inflection point for the NIM? And we can move higher despite your rate sensitivity or is the expectation that it's going to be a push and pull each quarter? And we shouldn't expect the margin to really move at least over the next couple quarters? Thanks.

Hope Dmuchowski

Michael. Thank you for the question. I would say it's probably going to be more of a push and pull quarter-to-quarter. It really depends on how quickly we do the rate cut. We see back to back rate cuts in November, December. And then we see some stabilization, our margin can stabilize but we continue to see month-after-month or quarter-after-quarter, repricing down.
As I mentioned in my comments, our loans are going to 59% of our loans are going to price down our deposits. We're going to have to work through that as they come off, promotions and new to bank. So I don't think it will necessarily be a steady trajectory one way or the other based on the current forward curve in 2025.
But we are doing everything we can to put things in place to make sure that we can take some of that asset sensitivity off of the table. As we see a very uncertain rate cut environment, for example, we just shortened our new to bank promos that used to be a 90 day guarantee to 45 days guarantee and that allows us a little bit more flexibility quicker.
And we are less asset sensitive currently because of that deposit repricing. It's just maybe the lag quarter-to-quarter, especially depending on how rates in a quarter we get the loan repricing for, we can get the deposit side.

Bryan Jordan

One of the key variables Michael is, Hope said, the pacing of rate cuts and as she properly noted, the more significant rate cuts are the more impact you will see on that net interest income, but the more offset you'll see in our fixed income business, etcetera. And that's why we focused on the total revenue where we think we're significantly more balanced and less sensitive to interest rate cycles than it might appear if you focus on one line item or the other.
But, we do believe that we've got the balance sheet positioned in such a way that we can manage through interest rate volatility, and we will adapt to whatever pace the FOMC sets for moving rates in the rest of this year and into 2025.

Michael Rose

Certainly understand that. Maybe just as a follow up. And I know the rate backdrop is difficult to project and I know it's early for next year, but is the plan or the expectation that you can grow kind of adjusted PPMR year-over-year? And, are you planning at this point for positive operating leverage?
And I asked that because I certainly understand you pulled some leverage on the cost savings front, but we're hearing more and more banks looking to hire bankers assume that would be some of your expectations to drive some balance sheet growth. But just wanted to just initially, if you had any comments on how we should, kind of think about that. Thanks.

Bryan Jordan

Yeah, we'll provide a little more guidance in the remainder of this quarter or outlook for the next year. But, I sit here today, I expect that we will drive positive PPNR next year and we're still working through the various line items. But I do think you will see us growing our PPNR in 2025.

Operator

Jon Arfstrom, RBC Capital Markets.

Jon Arfstrom

Hey, thanks, good morning,

Bryan Jordan

Good morning, John.

Jon Arfstrom

Bryan, one for you. Give us your thoughts on loan growth expectations. Looks like you guys referenced some CRE stability but C&I was a little bit weaker but talk about what you're seeing, you know how much of this is self-imposed and what kind of an outlook you have for growth?

Bryan Jordan

Yeah, I would say very little of what we're seeing is self-imposed. We're not limiting the size of the balance sheet. There one caveat to that, that I will come back to in a second. The loan growth in the marketplace is somewhat muted at this point. It is not picked up. I couldn't tell you, well how to wait the parts, but I suspect some part of it is what happens in the elections that are coming up in the next month. It's partly weighted on what the Fed is going to do with interest rates and, in particular, when deals start to look better financially.
And, then just overall are we going to have a soft landing or something else, and I'm somewhat optimistic that we get through the next 90 days, we'll have greater clarity maybe on all three of those. And, if we do, I think there's some pent up loan demand, at least we hear that and in our customer conversations.
The marketplace is still somewhat muted and it's still very competitive at this point. I mentioned the one exception, there are a few places where we have taken some participations where we had been in participations for a period of time. We had not broaden or deepened the relationship as we thought we might. And we've used the opportunity to exit out of some of that. But other than that, we're looking to grow with our client base. We're looking to grow and lean in when customers are ready to make investments,

Jon Arfstrom

Okay, but fair enough on that. So maybe a little more optimism potentially. I know that's a lot of hedging there, but it feels like you're still somewhat optimistic on growth?

Bryan Jordan

I didn't, mean to hedge as much as I meant to convey uncertainty about what's going to happen,

Jon Arfstrom

Hope, follow up on fixed income. Are you willing to share what the ADRs look like in August and September? How big of a step up that was? I think that would help us with maybe a run rate?

Hope Dmuchowski

John, I actually don't have that in front of me. You know, August in September were generally pretty equal as I recall, but the end of September following the rate cuts was a significant uptick. And right before the rate ticks were kind of quiet.
So I would say the months were not materially different, but the weeks told a much different story. Nobody really wanted to buy anything right before the rate cut and after the rate cut, we finished the quarter really strong. And I think we'll see that same type of momentum as there's uncertainty about rate cuts in the coming two months.

Bryan Jordan

John, the 10 year, the rate curve has moved around a good bit of people's expectations for the economy have changed. I'll give you the last two weeks. If you look at the first week of October, we're a little over $1 million. -- Last week, we're a little over $500,000. So two weeks does not make a trend and it moves around based on what interest rates and sentiment in the market are doing.
On the whole, we were a little over, I think we're $563,000 for this quarter and just passed and, our outlook is to be slightly better for that than the remainder of the year. And you have to keep in mind as you well know that at some point the markets tend to shut down as you get into the back part of the year. So we're optimistic on activity for the remainder of this year.

Operator

Jared Shaw, Barclays Capital.

Jared Shaw

Hey, good morning, everybody. Maybe just going back on the deposit side, the $18 billion that you referenced, that's coming due in fourth quarter. Could you give us an update on the pricing of those deposits down and where you expect to see that moving to? And also is there a term change in that promotion?

Hope Dmuchowski

Starting at the end of your question, we have changed the terms as recently as last week as we continue to look at how to bring down rates. It is really a sensitivity analysis of how sensitive our clients to how quickly the rates are falling. And so, we did just roll out at the end of last week, new rates that, as I mentioned earlier, only guaranteed for 45 days versus our prior 90 days.
Our money market is currently at 425 that compares to 505 last quarter, when you asked me on the earnings call. Our retention offer is now 33.5%. And so what we've been walking back ahead of the rate cut and after, and we have quite a few scenarios for how that might walk back depending on the rate cuts we see in Q4. December rate cut is really hard for us to make much headway with deposits and so another November rate cut will have the most meaningful impact on how much we can walk it back.

Jared Shaw

And then as we look at the deposit composition, what's the appetite for additional brokered from here? I heard your commentary that you built that up in anticipation of the mortgage business. Should we expect to see brokered be a bigger part of the overall deposit mix or are we near the top?

Hope Dmuchowski

Jared, our goal is always use client money first and broker's second. So let's start with that being our goal, the more we can bring and retain client money, the less brokers we need. Broker for us is always kind of a match funding for mortgage warehouse. We saw Mortgage Warehouse on average of about $400 million last quarter, which I'll note is against past year, typically Q3 comes down and we actually saw it come up with some of the rate cuts and we saw our refi activity actually increased 5% quarter-over-quarter.
So as we think about that is really going to be more about mortgage warehouse and how much we continue to have balances there in the short run. But yes, our goal is to always try to get out of a quarter-over-quarter when we can, whether we see decreasing mortgage warehouse balances or increasing client money. But I am comfortable where it's at. We're well below our peer group, the last couple quarters when compared to our brokerage versus theirs.

Jared Shaw

Okay, thanks. And then just finally, for me, I know you're guiding more towards total revenue versus NII versus fees. But, with the expectation, how should we think about the dynamic between continued margin pressure but potentially some balance sheet growth? You know, we are we at a trough for NII here or trying to gauge or what the -- how we're ending the year? What the exit of NII is for '24?

Hope Dmuchowski

Jared for 2024, I don't see much of a change from our prior guidance and you look at the new revenue guidance we gave. It is in line of both revenue and NII, just already come in the low end of one and the high end on the other. For us not just for Q4 going into next year.
As we think about NII, the big unknown for us is how much mortgage are we going to see? It's our highest yielding asset. And so we did see a large revival and it moved from a 22% to the historical 30% or 40% or 50%, we've been seeing. That would help NII significantly.
So if we talk about Counter-Cyclicals, FHN Financial is in the income line, but the majority of mortgage warehouse and mortgage is in the NII line. So that also is as we talk about embedded hedges, we do have an embedded hedge with hopefully loan growth going into 2025 in both of those businesses.

Operator

Sámuel Varga, UBS.

Samuel Varga

Hey, good morning. I just wanted to switch over to deposit a little bit. I wanted to see if you could give some color on any -- you should give, you might have going on to attract some non interest deposits whether it's through retail or, commercial?

Bryan Jordan

This is Bryan. We're looking to really grow across the entire deposit base. We have had very, been very active in growing our non-interest bearing deposits, they've been stable, which it was sort of follows along with what we articulated earlier in the year, which is you get to a core level as a percentage, it drops a little bit, but that's because we grew non-interest bearing.
But we're looking to grow customer relationships and, growing core checking accounts, non-interest bearing low cost deposits is an important part of that. So we have had a number of efforts across our entire franchise to grow those deposits and we will continue to lean in and, look to grow client customer relationships on the commercial and the consumer side.

Samuel Varga

Understood. And then Hope, the 12% of loans that are arms. Can you give us a sense for what sort of weighted average yield that part of the book currently has? And I understand that over the next year, there's not much of a reset on any of those, but I guess as you think about late '25 and '26 are there sort of bigger chunks that we should be aware of this main model NII?

Hope Dmuchowski

I don't have the weighted average of where they're at currently from the rate, but we don't have a large wall of them at any time in the next three years. They've kind of been steadily added to our balance sheet over the last 2, 2.5 years.
What I'll say though is we expect a lot of them to get prepaid. That being fixed for five, six, seven years, whatever they have left at a 6%, 7%. If we really see rates get cut 100% 200% that is one of the items that I think we will. That I mentioned earlier that we could see a large amount of refi in the ARM space or what we have in our balance sheet today.

Bryan Jordan

If I remember correctly, and I'll look to the Natalie because she remembers these numbers better than I do, but you can use as a proxy. I think our consumer loan portfolio yielded in the 5.8% or so range, maybe a little higher in the third quarter and that's largely driven by ARM. So that's a proxy for that number.

Natalie Flanders

Agreed.

Operator

Chris McGratty, KBW.

Christopher McGratty

Good morning. Hope, maybe a question or Bryan on the PPNR '25 being above '24. Just I guess a couple questions, maybe a comment between. Is that more of a revenue comment or an expense control, given your steps and secondarily does that currently factor in the forward curve right now? Thanks.

Bryan Jordan

So, if I break that yes down, we can prognosticate about rates is probably most efficient to always use it for curve. So that's sort of our point of reference and it's been in flux. And, we're always focused on growing revenue, we're always focused on controlling expenses.
I think we have a number of catalysts that we're working to leverage, that are really important in terms of our ability, not only of driving PPNR in 2025 but creating long term shareholder value, essentially taking our returns a little over 13% on tangible common equity back north of 15%-plus.
And those initiatives that we're focused on are really the logical follow on of the work that associated with the merger of equals that didn't get done during the integration period. And so we see a number of opportunities once we get the systems investments made at a very tactical level to grow revenue, to deepen relationships, to drive additional loan growth, and to control our costs, centralizing further centralizing processes, things of that nature.
So I've circled back around to, yes, we think it's, it's going to be across all of the levers that you mentioned.

Christopher McGratty

And then maybe on regulation, your target of 11% on CET1. You're slightly above it. I would expect, you're saying you're going to continue with the buyback, but just any changes, over the medium term that you might be contemplating now that -- will been a little bit watered down and also maybe a comment Bryan about where you are on the investment for [$100 billion]?

Bryan Jordan

We look at capital and clearly our Board is involved in the any discussions about buyback and authorization. We feel like we have sufficient authorization to get us through the fourth quarter. We will talk to the Board in the early part of 2025 about further authorization. We don't see any short term catalyst to bring the, the CET1 ratio below 11%.
What we've said is we're looking at the economy and, how things play out and, I would get circle back in some ways to what I said earlier that customers have uncertainty about soft landing and interest rates and the election process that clarity they get will also be clarifying to us and the more certain we get about continued strength and improvement in credit performance and things like that, the more comfortable we get as we approach the soft landing to bring that ratio down.
We do think that the CET1 ratio is above where we need it through the cycle. So we will look at that probably it will be sometime in the early part of 2025 before we really start to re-assess it in a meaningful way.
But the second part of that is regulatory hurdles particularly around becoming an [LFI] at $100 billion. We are doing a fair amount of work and making investments in the near term to prepare for crossing that threshold is.
As we look at it, we think we've got a number of years to do that work and we will feather those costs in overtime and build those capabilities, that infrastructure. But, given the markets that we're in, given the strong client relationships that we have, we do believe that leaning forward and growing the balance sheet is an important part of it. And it's not a matter of if we hit the $100 billion threshold is really a matter of when.
And that we are going to build the preparatory infrastructure to get it in place so that it won't be an obstacle to our ability to continue to grow on the other side of that. I also think that in the event that you have a more difficult landing building, that infrastructure gives us the opportunity to be opportunistic, if they're a strong deposit base that we have the opportunity to pick up in a more difficult financial set of circumstances, i.e., you have more trouble institutions.

Operator

Timur Braziler, Wells Fargo.

Timur Braziler

Hi, good morning. Maybe one for Hope, just following up on some of your comments relating to mortgage outlook for next year, I guess what's the rate environment need to look like for a mortgage to get back to some of the type of performance that maybe you were implying on the upside?

Hope Dmuchowski

Our overall belief is that we have to be at a sub 6% mortgage rate. How that will play out is a little bit uncertain. This last 50 basis point cut, barely touched mortgage rates as the Board, as the curve became less inverted and actually had a deepened curve for a little while there.
What I think it will be the telling thing and the thing that we continue to see is new home purchases. So not refis just first time home purchase second homes has been historically low for the last two years. So a lot of the data we're seeing from the mortgage industry says we have the highest supply we've seen and that they think buyers will start getting back in. So I think it's going to be a combination of new purchases when we get under 6% as well as a refi for the people that are in their fixed rate part of their ARM.

Timur Braziler

Okay. And then maybe just on the revenue guide, it implies a pretty wide range of outcomes in the fourth quarter. I'm just wondering where the greater variability is. Is it on the NII side? Is it on the fee side? And then maybe more specifically on fees, you called out some of the other fees this quarter as being one time in nature. Can you maybe give us a starting run rate for 4Q kind of X one of the, some of those one-time fees?

Hope Dmuchowski

Sure. What I would say is, start with, we did not intend to change our range. It really comes down to rounding is we would have had to say like point. Instead of flat would have been 0.33. The intent is not at all to change our revenue range for Q4 for the year. It is, there's probably more upside on fee income and more downside on NII. It's the forward curve plays out.
We really see 75 basis points of cuts in two successive months. NII will be on the lower side and the fee income will pick up. If we don't see any cuts, NII is going to come in better and I think the income would look similar to this quarter.
It's really hard to handicap whether when the current Board occurs at 75 basis points, but most of the market doesn't believe we'll get more than 25 basis points.

Timur Braziler

Okay. And then just the one timers, this quarter for fees is that the full increase in the other line?

Hope Dmuchowski

All the other items it always bounces around. BOLI is something that, you know, it just comes when it comes and you don't know. So, we often have to comment on BOLI, since we do run a portfolio of that moving quarter-to-quarter.
I can't really predict what's going to happen next quarter. Obviously, you can figure out slab that those dividends pay in a quarter or so, the more that we're borrowing, the more we get those dividends, I don't expect it to be materially up or down. If I'm honest, it tends to go about in a $5 million range quarter-to-quarter.

Timur Braziler

Great. And if I can sneak one more question in. So the comment on commercial real estate that the funding schedule has kind of stabilized out. I'm just wondering as we do get rate cuts as pay down start to accelerate. Is there any way you can quantify maybe what historical paydowns have looked like what they looked like more recently? And what type of headwind that might be that broader loan growth?

Hope Dmuchowski

You're talking about pay downs on NPLs?

Timur Braziler

-- No, pay down on commercial real estate.

Hope Dmuchowski

Okay. Sorry, I thought you're talking about the ones that we mentioned that were in non-performing, that we're still paying.

Thomas Hung

Yeah, I think -- . This is Thomas Hung here. I think that's going to be a little hard for dick right now because, for us, a lot of our commercial real estate is, went heavier on the construction side and probably a lot of that in years. And so in terms of pay downs, it'll really come down to the other home financing market. How much appetite there is for that home takeout financing. That's what we really try. The level of pay down that we see.

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

Thanks. Good morning. I had a follow up credit question as it relates to the Shared National Credit exam this year. Is there anything that could fall out on that in terms of either, you know, inflows of NPLs or more importantly, charge offs as we move into Q4 and Q1?

Thomas Hung

Hi, this is Thomas Hung, again. I don't expect so. Overall, Shared National Credit, it's runs a little under $8 billion for us overall. And if you look at kind of the relative performance of our snick books or our C&I book, the metrics are all generally about the same in line, there's not really a material difference in terms of classified assets, NPLs or year-to-date net charge off and do so. My expectation is that next should continue to perform about the same as the overall book, we haven't really seen a variance.

Christopher Marinac

Great. Thank you for that and then Hope just a quick one for you. I know you broke out a lot of information on the other expense numbers this morning. Is there anything in there for operational losses or customer fraud, things of that nature that would stand out?

Hope Dmuchowski

There's nothing that stands out now. As I said, it was a bunch of small items that added up to $5 million. We did not have, you know, significant broad change quarter-over-quarter or any large onetime gains on any sales of property or things like that.

Operator

Thank you very much. We currently have no further questions. So I'd like to have that Brian Jordan, CEO for any closing remarks.

Bryan Jordan

Thank you, Carly. Thank you all for joining our call this morning. We appreciate your time and your interest. Please follow up with any additional questions that you may have. Hope everyone has a great day.

Operator

As we conclude today's call, we thank everyone for joining. You may disconnect your lines.