Oct 15, 2026 earnings call — Mortgage portfolio sale and balance sheet restructuring
First Horizon initiated sale of approximately $4.5 billion in mortgage loans, which management says will produce about 4% EPS accretion in 2027.
Revenue $0.9B (est $0.9B) · EPS $0.53 (est $0.52)
Key quotes
"This transaction is expected to settle early in the fourth quarter and result in selling approximately $4.5 billion in lower yielding mortgage loans with limited deposits and relationship balances at an approximately 10% discount all in."
"As we enter into a rate increase cycle, we will focus on betas through the cycle targeting approximately 60%."
"Over the last year, we have grown our commercial loan portfolio nearly $2 billion in line with our strict strategy of growing the balance sheet to generate sustainable returns and drive the most value for our clients."
Analyst Q&A 17
mortgage portfolio sale and timing
Q (Jon Glenn Arfstrom · RBC): Why sell now, how size $4.5 billion, anything left to do? Also, what drives the 4% EPS accretion assumption?
A: They said the sale targeted non-relationship, low-yield loans to create balance-sheet capacity to fund deeper customer relationships. The transaction is essentially done with a signed agreement and should settle in days to a week; proceeds will pay down wholesale funding and go into short-term floating-rate securities to deliver the 4% immediate EPS lift.
"So the timing was it was a low yielding set of assets nonrelationship." — D. Bryan Jordan (CEO·CHAIR)
deposit costs and loan growth
Q (Ryan Nash · Goldman Sachs): How to interpret the 12 bps deposit cost rise versus 60% beta and will deposit pressure persist? Also, views on loan growth with freed balance-sheet capacity.
A: They said 60% beta is through the cycle and quarter-to-quarter noise depends on timing of hikes; summer promo deposit costs and cash offers caused part of the rise. They remain upbeat on loan growth, expect steady demand, and will be selective while using unique national specialty businesses to generate assets.
"We also only had 2 weeks of this rate hike baked into this quarter." — Hope Dmuchowski (CFO)
loan-to-deposit ratio and mortgage warehouse
Q (Ebrahim Poonawala · BofA): Is 88% loan-to-deposit the new normal and could this support $100B+ assets? Also, how do you view the mortgage warehouse business now?
A: They said the mortgage sale is not meant to grow securities long-term; proceeds go into floating-rate securities then redeployed into loans, making the balance sheet slightly more asset sensitive and giving ability to grow loans while deposits lag. On mortgage warehouse, balances fell about $900 million, likely peaked in Q2, they expect consolidation but feel well positioned with low historical charge-offs and held collateral protected at closing.
"The mortgage warehouse lending business came down about $900 million in the quarter." — D. Bryan Jordan (CEO·CHAIR)
$100M PPNR opportunity and $45M benefit
Q (Michael Edward Rose · Raymond James): Is the $45 million after-tax from the sale incremental to the $100 million pretax PPNR plan? And what remains to reach the full opportunity?
A: They said the $45 million is incremental to the $100 million pretax pre-provision efforts. Remaining upside depends on timing and annualization from deepening treasury management and wealth relationships, which can take months to fully convert.
"Think about the $45 million, to use your word, in addition incremental to the $100 million pretax, pre provision efforts that we have in place." — D. Bryan Jordan (CEO·CHAIR)
commercial real estate outlook
Q (Bernard Von Gazzicchi · Deutsche Bank): How do you see CRE forward given higher rates? Also, were fixed-income client restructurings quarter-specific?
A: They said CRE momentum continues and disciplined underwriting shows low net charge-offs averaging 17 basis points since early 2023, and multifamily supply and absorption dynamics support performance. Fixed-income client restructuring tends to rise with quick rate moves; future restructuring depends on how quickly rates change.
"Since then, our net charge-offs have averaged 17 basis points" — Thomas Hung
deposit mix and capital priorities
Q (Ryan Kenny · Morgan Stanley): What drives non-interest-bearing mix and can NIB and IB balances grow? Also, does sale reduce priority for depository M&A?
A: They said mix shift hasn't reappeared; customers are optimized and spending patterns lower average balances, but they expect to grow NIB and IB deposits through relationship focus. The sale reduces urgency for small deposit-adding acquisitions and increases optionality to invest in customers and repurchase shares with about $660 million capacity remaining.
"We are not seeing mix shift, and we have not seen it for well over a year now." — Hope Dmuchowski (CFO)
redeploying sale proceeds to loans
Q (Janet Leigh · TD Cowen): Of the $4.5 billion sale, how much will redeploy into C&I and CRE; is mid-single-digit loan growth target intact?
A: They said pro forma the proceeds are first placed in securities but expect to redeploy into loan growth over time; their working assumption is roughly half of the $4.5 billion, a little over $2 billion, could become incremental loans over the next 2 to 3 years. Timing depends on the economy and rates, but they believe their asset-generation can achieve growth in that range.
"My working assumption is that over the next 2 to 3 years, we can deploy you know, half of the $4.5 billion, so call it a little over $2 billion in incremental loan growth activity over the next 2 to 3 years." — D. Bryan Jordan (CEO·CHAIR)
big strategic moves vs. execution
Q (Jared David Shaw · Barclays): Should we expect more big balance-sheet changes or focus on execution like treasury and wealth management? Also, what's securities portfolio reinvestment rate?
A: They said no other big balance-sheet profile changes are expected; the strategy is blocking-and-tackling to deepen relationships and deliver the $100 million PPNR. Securities rolloff is about $1 billion with a roll-off yield of 2.9%, while current floating reinvestment yields are in the mid-4s.
revenue outlook and expense guide
Q (Anthony Albert Elian · JPMorgan): What drove reduction to revenue outlook; will NII and NIM lifts offset lower countercyclical revenue? And why unchanged full-year expense guide despite Q3 step-up?
A: They explained Q4 revenue compares to a strong Q4 last year with higher mortgage warehouse balances and ADR that they do not expect to repeat, so countercyclical revenue is lower. Expense timing drove Q3 step-ups (deposit cash incentives and seasonality), but they expect expense realization from technology and restructurings to flatten full-year expense, with reduced go-forward personnel costs from mortgage restructuring.
"We had a really strong Q4 last year in our countercyclical." — Hope Dmuchowski (CFO)
use of proceeds between wholesale and securities
Q (Timur Braziler · UBS): What portion of proceeds will reduce wholesale versus buy securities? Does the deal change willingness to stay independent or strategic optionality?
A: They said they are still modeling scenarios and expect a mix into securities and reduction of wholesale funding as client deposits came in; higher wholesale at quarter end will come down. Management said the repositioning increases optionality, creates a more profitable customer-centric balance sheet, and does not reduce strategic optionality to operate for long-term value.
"It creates a more profitable customer centric balance sheet." — D. Bryan Jordan (CEO·CHAIR)
hedges and asset sensitivity
Q (Brooks Sutton · Jefferies): Will you unwind received fixed swaps maturing in 2027 in a hiking cycle or let them run to keep asset sensitivity?
A: They said bringing down duration is positive and they always reevaluate balance-sheet hedges based on rate changes, but currently have no near-term transactions planned. They consider countercyclical businesses when deciding derivatives and will make hedge decisions as they get closer to outcomes.
"We are always evaluating what are, but, you know, bringing down the duration of the portfolio was a positive to this." — Hope Dmuchowski (CFO)
why 60% deposit beta
Q (Casey Haire · Autonomous): Why is 60% beta the through-cycle target and not lower given improved liquidity and ability to let loan growth pick up?
A: They said 60% is slightly lower than the prior rising-rate cycle peak (~70%) and is an early estimate; actual beta depends on competitive deposit behavior and loan growth in the environment. They'd like to beat it but use it as a proxy given unknowns.
"I would say that target's a little bit lower than what we saw through the last rising rate cycle we had the banking crisis in there." — Hope Dmuchowski (CFO)
capital, CET1 and buybacks
Q (Peter Winter · Hovde Group): Will the sale affect CET1 immediately and how aggressive will buybacks resume; any CET1 floor?
A: They said buybacks are opportunistic and board evaluates capital each quarter; they feel comfortable in a 10.25% to 10.5% CET1 range post-transaction and expect continued capital generation to support growth and repurchases. The sale's impact on CET1 was already marked at quarter end when the agreement was entered, and they had paused buybacks while the transaction discussion was ongoing.
C&I loss trends and unfunded commitments
Q (Christopher William Marinac · Brean Capital): Are current C&I loss levels sustainable near term, and do rising unfunded commitments reflect customer growth?
A: They said C&I net charge-offs have been consistent quarter-to-quarter and they do not expect material deviation soon; losses are tied to discretionary consumer spending and some manufacturing. Unfunded commitments moving on to balance sheet represent net growth, broadening and deepening of customer relationships.
"C and I net charge offs have been fairly consistent." — Thomas Hung
deposit beta and hot-money risk
Q (Ben Gurlinger · Citi): Could beta step lower because sale reduces hot-money exposure; can you keep NIB while growing deposits?
A: They said they do not chase hot money and lack a national deposit CD franchise; they protect back-book relationships and retain over 90% of deposit clients each quarter by paying fairly when rates move. They run an asset-sensitive balance sheet and expect deposit beta to vary with competitive dynamics, so they forecast around 60% but will optimize pricing to serve customers and profitability.
"We do not chase hot money." — Hope Dmuchowski (CFO)
earnback vs buybacks for proceeds
Q (Chris McGratty · KBW): Why sell loans now versus buying back stock—how does earnback compare to repurchases?
A: They said immediate earnback assumes investing proceeds in securities and is the minimum; redeploying about half into loans shortens payback materially and can outperform buybacks. Reinvesting into loans at SOFR plus mid-100s to mid-200s yields about 100+ basis points more than securities day 1, creating upside as redeployment occurs.
"If you assume, like, we believe we can, that we can invest in incremental customer relationships over the next couple of years." — D. Bryan Jordan (CEO·CHAIR)
property valuations and refinancing
Q (Russ Anderson · Evercore): Are borrowers bringing more equity at refinancing or do cash flows support renewals; what are updated property valuations?
A: They said the refinancing market remains robust with deals taken out by banks and private credit often without additional equity because property values held up; worst-case appraisal decreases have been about negative 20% in some markets. Their consistent underwriting to about 40% equity (60% LTC) has absorbed decreases and preserved healthy equity in deals, supporting portfolio performance.
"Generally speaking, kind of where we have seen where we have seen decreases even kind of the higher cases of those, it is been about a negative 20%." — Thomas Hung