What First Horizon (FHN) Said on Its Q3 Earnings Call

Key Points

• First Horizon plans to sell approximately $4.5 billion of lower-yielding residential mortgage loans at an estimated 10% discount, aiming to improve margins, reduce its loan-to-deposit ratio to about 88%, and generate roughly 4% EPS accretion in 2027.
• The company reported third-quarter adjusted EPS of $0.53, up 4% year over year, while net interest margin reached 3.48%. Client deposits grew strongly, with more than $1 billion added during the quarter, despite lower period-end deposits due to reduced brokered CDs.
• First Horizon expects to resume share repurchases in the fourth quarter, supported by a 10.3% CET1 ratio and more than $660 million in remaining buyback capacity; management also anticipates positive operating leverage in 2027.

First Horizon NYSE: FHN reported adjusted earnings per share of $0.53 for the third quarter of 2026, up 4% from a year earlier, while outlining a planned sale of approximately $4.5 billion of lower-yielding residential mortgage loans as part of a broader balance-sheet and mortgage-business realignment.

Chairman, President and CEO Bryan Jordan said the company has grown its commercial loan portfolio by nearly $2 billion over the past year and remains focused on expanding full client relationships. The mortgage loan sale is intended to create capacity for relationship-based lending, improve profitability and provide greater flexibility in managing deposits and wholesale funding.

“We sized the portfolio based on trying to extract out or sell what was essentially non-relationship portfolio assets,” Jordan said during the earnings call. The loans being sold have about $200 million in associated deposits, he said, and were selected to exclude relationships tied to private-client and wealth businesses.

Mortgage Sale Expected to Lift 2027 Returns

Chief Financial Officer Hope Dmuchowski said the company entered into a sale agreement in October and expects to settle the transaction early in the fourth quarter. The transaction involves mortgage loans with an overall weighted-average coupon of 3.85% and is expected to be completed at an approximate 10% all-in discount.

First Horizon expects the sale to reduce its loan-to-deposit ratio to roughly 88%, improve net interest margin immediately and produce approximately 4% earnings-per-share accretion in 2027, excluding potential benefits from redeploying proceeds into new loans. The company also expects the transaction to improve adjusted return on tangible common equity by about 150 basis points.

Dmuchowski said the immediate use of proceeds will include paying down wholesale funding and investing in short-term floating-rate securities. Over time, management expects to redeploy a portion of the proceeds into higher-yielding lending opportunities.

Jordan said he expects the company could deploy roughly half of the $4.5 billion in proceeds, or a little more than $2 billion, into incremental loan growth over the next two to three years, depending on economic conditions, interest rates and inflation.

The restructuring also includes reductions within the mortgage line of business to more closely align mortgage production with core clients. Jordan said the company does not expect additional major balance-sheet-profile changes following the transaction, instead emphasizing execution in treasury management, wealth management and broader client relationship efforts.

Margins and Deposits

First Horizon’s net interest margin was 3.48% in the third quarter, down 1 basis point from the prior quarter. Net interest income increased $7 million, supported by higher loan yields and customer deposit growth that replaced brokered deposits during the period.

The company said it expects net interest margin to move into the 3.50% range in the fourth quarter. Dmuchowski said the mortgage transaction should support continued margin strength through 2027, particularly as the balance sheet becomes more asset sensitive.

Client deposits rose by more than $1 billion during the quarter, although period-end total deposits declined by $400 million as brokered certificates of deposit decreased. New client deposits grew approximately $1.5 billion, management said.

The average rate paid on interest-bearing deposits increased 12 basis points sequentially to 2.45%, reflecting higher average brokered deposits, increased customer deposit costs and the resetting of indexed client deposits. Dmuchowski said First Horizon is targeting a deposit beta of approximately 60% through an interest-rate-increase cycle, while noting that quarterly outcomes may vary depending on the timing and number of rate moves.

Management said it was not seeing broad deposit mix shifts, arguing that rate-sensitive customers had largely already adjusted their balances. Dmuchowski said inflation has instead contributed to customers maintaining lower average operating and checking-account balances as they spend funds more quickly.

Loan Trends and Credit Quality

Period-end loans declined $5.5 billion from the prior quarter, primarily because of the reclassification of mortgage loans associated with the planned portfolio sale. Loans to mortgage companies declined $891 million, while commercial and industrial loans excluding mortgage-company lending fell $96 million. Commercial real estate loans increased $97 million.

Jordan said commercial loan demand remained steady overall, though he acknowledged that rising rates and inflation could slow activity as the company enters 2027. He pointed to specialty businesses including mortgage warehouse lending, franchise finance, equipment leasing, and trucking and transportation as sources of asset-generation capacity.

Chief Credit Officer Thomas Hung said credit performance in commercial real estate has remained solid, citing disciplined underwriting and an average commercial real estate net charge-off rate of 17 basis points since the beginning of 2023. He said the company continues to see a robust refinancing market for development deals, including activity from commercial banks and private-credit providers.

• Nonperforming loans were unchanged at 81 basis points, with nonaccrual balances declining $49 million.
• Net charge-offs increased $3 million sequentially to $36 million, or 22 basis points of loans.
• Excluding the mortgage restructuring impact, provision for credit losses was $20 million.
• The allowance for credit losses-to-loans ratio increased 1 basis point to 1.25%, primarily due to loan mix changes tied to the mortgage reclassification.

Capital and Expense Outlook

First Horizon ended the quarter with a common equity tier 1 ratio of 10.3%, while tangible book value per share was $13.84, down 5% from the prior quarter due to the mortgage transaction’s impact. Tangible common equity to total assets stood at 7.93%.

Jordan said the company expects to resume share repurchases in the fourth quarter and remains comfortable operating with a CET1 ratio in the 10.25% to 10.5% range. He said the company had more than $660 million of remaining repurchase capacity and would remain opportunistic.

The company continues to pursue a previously discussed opportunity to generate more than $100 million of pre-provision net revenue, with management saying it is about 40% of the way toward that goal. Jordan said the expected $45 million after-tax benefit from the mortgage transaction is incremental to that initiative.

Dmuchowski said First Horizon does not anticipate the significant reinvestment levels seen several years ago and expects expense growth to be inflationary on a year-over-year basis. Management expects positive operating leverage in 2027 while continuing to invest in banking centers, technology, artificial intelligence initiatives and hiring.

About First Horizon (NYSE:FHN)

First Horizon Corporation NYSE: FHN is a financial services company headquartered in Memphis, Tennessee. Through its banking subsidiary, First Horizon Bank, the company provides a range of financial products and services to consumers, businesses, and institutions.

Its main activities include consumer and commercial banking, lending, deposit accounts, treasury and cash-management services, mortgage banking, and investment and wealth-management services. First Horizon also offers capital-markets and investment-banking services through its specialized businesses, serving clients across various industries and market segments.

The company traces its roots to First Tennessee Bank, which was founded in Memphis in 1864.

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