Clarify the 60% deposit beta expectation and explain the 12 basis point increase in deposit costs this quarter, given only two weeks of rate hike impact.

The 60% beta is a through-the-cycle expectation, not quarterly. The Q3 increase was influenced by competitive summer months with promotional rates and higher average wholesale deposits. The mortgage sale is expected to improve NIM into the 350s, and the company focuses on relationship-based deposit growth. “Starting with the 60% beta comment, that is through the cycle. And so quarter-to-quarter, depending on when you have a rate increase earlier late in the quarter, that is not meant to be a quarter in, quarter out.”

With the loan-to-deposit ratio shifting to 88%, is this the new normal, and does it position the bank to become a $100 billion-plus asset institution?

The immediate plan is to deploy proceeds into securities, but the intention is to redeploy into loan growth. The lower LDR provides flexibility for loan growth, even if deposit growth lags slightly. The mortgage sale also shortens duration and increases asset sensitivity by 100 basis points, positioning the bank for a rising rate environment. “This does allow us to have some additional growth on the loan side with the deposit side slightly lagging, whether it's either quarter-to-quarter or year-over-year, loan-to-deposit ratio gives us a little bit more ability to loosen up those rains for the right side of the balance sheet to grow.”

How does the $45 million after-tax benefit from the mortgage sale relate to the existing $100 million plus PPNR opportunity?

The $45 million benefit from the mortgage sale is considered incremental or 'in addition' to the ongoing $100 million plus PPNR efforts. The PPNR opportunity is a blocking and tackling exercise focused on deepening client relationships and improving efficiency. “Think about the $45 million to use your word in addition or incremental to the $100 million pretax pre-provision efforts that we have in place.”

FHN

First Horizon (FHN) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Sep 2026 (Q3 FY26)· Financials· Oct 15, 2026

Source: earnings call transcript

Executive summary

First Horizon Q3 FY26 — Strategic Mortgage Portfolio Sale and Balance Sheet Repositioning

First Horizon executed a strategic mortgage portfolio sale in Q3 FY26, repositioning its balance sheet for enhanced profitability and client relationship focus. This move, alongside continued commercial loan growth and client deposit inflows, aims to improve future earnings and returns, despite some near-term pressure from lower fee income and increased provision expense. The company maintains a strong capital position and plans to resume share repurchases, signaling confidence in its strategic direction and financial outlook.

Highlights

Adjusted EPS of $0.53, representing a 4% increase year-over-year.
Commercial loan portfolio grew nearly $2 billion over the last year, aligning with strategic growth.
Client deposits increased by more than $1 billion this quarter, demonstrating relationship focus.
Strategic mortgage portfolio sale expected to be 4% EPS accretive and improve ROTCE by 150 basis points in 2027.
Loan-to-deposit ratio reduced to approximately 88%, enhancing liquidity and balance sheet flexibility.

Concerns

Adjusted EPS declined to $0.53 due to lower fee income and slightly higher provision expense.
Adjusted ROTCE decreased to 14.4% in the quarter, impacted by temporary capital use timing.
Period-end deposits decreased by $0.4 billion compared to the prior quarter, driven by a reduction in broker CDs.
Net charge-offs increased by $3 million to $36 million, bringing the net charge-off ratio to 22 basis points.

Guidance & targets

Category	Target	Timeline	Confidence
EPS accretion from mortgage portfolio sale	approximately 4% high materiality	FY27	High
ROTCE improvement from mortgage portfolio sale	approximately 150 basis points high materiality	FY27	High
Net Interest Margin (NIM)	improve into the 350s high materiality	Q4 · FY26	Medium
Deposit Beta	approximately 60% medium materiality	through the cycle	Medium
Expense Growth	inflationary from here on out medium materiality	ongoing	Medium
Operating Leverage	positive operating leverage high materiality	FY27	High
Operating Leverage	positive operating leverage medium materiality	FY28	Medium
PPNR opportunity progress	$100 million plus medium materiality	ongoing	High

FHN operating KPIs by quarter

FHN operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	This call Sep 2026 Q3 FY26	Change vs prior quarter
Common equity tier 1 ratio (CET1)	10.53% On Slide 13, we ended the quarter with a CET1 of 10.53%, driven by buyback activity and loan growth in the quarter. Source: earnings call transcript	10.5% On Slide 14, we ended the quarter with CET1 of 10.5%, which is in line with our near-term targets. Source: earnings call transcript	10.3% On Slide 14, we ended the quarter with CET1 of 10.3%, which is down slightly from the prior quarter and reflects the impact of notable items, including the mortgage transaction we discussed. Source: earnings call transcript	-0.2 pt

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Not named Sale of approximately $4.5 billion of targeted residential mortgage loans. $4.5 billion

The loans have minimal deposits (approx. $200 million) and a weighted average coupon rate of 3.85%. The transaction was entered into an agreement in October and is expected to settle early in Q4 FY26 at an approximate 10% discount all in.

Risks & headwinds

Competitive deposit environment ongoing

Average rate paid on interest-bearing deposits increased 12 bps to 2.45%

Mitigation:Focus on growing core deposit base and prioritizing relationship growth; protecting back book and client relationships.

Impact of rising rates and inflation on economic activity transition into 2027

GDP growth still around 4% for Q4, but rising rates and inflation likely to slow economy.

Mitigation:Being smart about asset generation, picking spots, and participating where the economy allows; asset-sensitive balance sheet.

Tougher economics in the mortgage business near-term

Mortgage warehouse lending came down $891 million in Q3.

Mitigation:Well-positioned with strong participants; built share and deepened relationships; strong credit performance with experienced operators.

Seasonality in expenses Q4 FY26

Other noninterest expense increased by $6 million QoQ due to timing of new account promotions.

Mitigation:Expect expense realization from technology and AI investments; restructuring of mortgage business and other smaller restructurings reduced go-forward run rate for personnel.

What to watch in Q4 FY26

Mortgage Portfolio Sale Settlement & Impact

Q4 FY26

Current Agreement signed in October, expected to settle early Q4.

Target Settlement confirmed, initial impact on wholesale funding and securities.

Why it matters

This transaction is a key strategic repositioning expected to drive 4% EPS accretion and 150 bps ROTCE improvement in 2027, and its successful settlement is foundational.

We entered into an agreement in October and expect to settle the transaction early in the fourth quarter.

Find out whether FHN delivers this. Inve re-checks your case every morning.

Q&A highlights

Why was the mortgage portfolio sale executed now, how was the $4.5 billion size determined, and are there any further similar actions planned?

The sale was timed with rising interest rates to create balance sheet capacity by divesting non-relationship, low-yielding assets. The size was determined by identifying loans with minimal associated deposits. The transaction is essentially complete, with no further large balance sheet profile changes expected.

“So the timing was it was a low-yielding set of assets, nonrelationship, we thought we could use the capacity for other and deeper relationships.”

asked by Jon Arfstrom · answered by Bryan Jordan

3 min read 7 chapters

Detailed narrative

Strategic Balance Sheet Repositioning

First Horizon initiated the sale of approximately $4.5 billion of targeted residential mortgage loans, with settlement expected in early Q4. This transaction is a core component of the company's strategy to realign its mortgage business, prioritize full client relationships, and enhance balance sheet profitability.

The loans being sold were characterized by minimal associated deposits (approximately $200 million) and a low weighted average coupon rate of 3.85%, making them less strategic for the bank's relationship-focused model.

Financial Impact of Mortgage Sale

The mortgage portfolio sale is projected to yield significant financial benefits, including approximately 4% EPS accretion in 2027 and an improvement of about 150 basis points in ROTCE, even before considering the upside from redeploying proceeds into higher-yielding assets. This repositioning will reduce the loan-to-deposit ratio to roughly 88%, providing increased liquidity and flexibility.

The immediate impact will involve paying down wholesale funding and investing in short-term floating rate securities, with further upside as funds are redeployed into incremental lending opportunities.

Net Interest Income and Margin Performance

Net Interest Margin (NIM) remained stable at 3.48% in the third quarter, compressing by only 1 basis point. Net Interest Income (NII) grew by $7 million quarter-over-quarter, driven by higher loan yields and the replacement of broker deposits with customer deposit growth.

Management anticipates that the flexibility gained from the mortgage portfolio transaction will support continued margin strength, with NIM expected to improve into the 350s in the next quarter. The sale also shortens the bank's duration and increases its immediate asset sensitivity by approximately 100 basis points.

Deposit Dynamics and Costs

Period-end deposit balances decreased by $0.4 billion quarter-over-quarter, primarily due to a strategic reduction in broker CDs, while new client deposits saw a robust increase of approximately $1.5 billion. The average rate paid on interest-bearing deposits rose to 2.45%, a 12 basis point increase from the prior quarter, reflecting higher average broker deposits and customer deposit costs.

The company expects deposit betas to be around 60% through the cycle and remains committed to growing its core deposit base through relationship banking.

Loan Growth and Credit Quality

Period-end loans decreased by $5.5 billion, mainly due to the reclassification of mortgage loans for the portfolio sale and an $891 million decline in loans to mortgage companies. Commercial & Industrial (excluding mortgage companies) saw a slight decrease of $96 million, while Commercial Real Estate grew by $97 million.

Credit quality remained stable, with Non-Performing Loans (NPLs) flat at 81 basis points and a $49 million reduction in nonaccrual balances. Net charge-offs increased by $3 million to $36 million, resulting in a 22 basis point net charge-off ratio. The Allowance for Credit Losses (ACL) to loans ratio increased by 1 basis point to 1.25%, primarily reflecting a mix shift from the mortgage transaction.

PPNR Opportunity and Operating Leverage

First Horizon continues to advance towards its stated $100 million plus Pre-Provision Net Revenue (PPNR) opportunity, having achieved approximately 40% of this target. The benefits from the mortgage portfolio sale are considered incremental to this ongoing effort. Management anticipates delivering positive operating leverage in both 2027 and 2028, with expense growth expected to be inflationary.

This will be achieved through continued investment in the franchise, including technology and banking centers, while maintaining disciplined control over the expense base.

Capital Management and Share Repurchases

The CET1 ratio ended the quarter at 10.3%, a slight decrease from the prior quarter due to the impact of notable items, including the mortgage transaction. Tangible book value per share was $13.84, down 5% quarter-over-quarter. The company plans to resume its share repurchase program in Q4, targeting a CET1 ratio in the 10.25% to 10.5% range.

Management views share repurchases as an opportunistic way to return capital to shareholders, especially when the stock is perceived as undervalued.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.