Newsfilter article unlocker

Hello, everyone. Thank you for joining us and welcome to the First Horizon third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Tyler Croft, Head of Investor Relations. Tyler, please go ahead. Thank you, Erica. Good morning. Welcome to our third quarter 2026 results conference call. Thank you for joining us. Today, our Chairman, President, and CEO, Brian Jordan, and Chief Financial Officer, Hope Domchowski, 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 at the end 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 and to other non-GAAP measures. Therefore, it's important for you to review the GAAP information in our earnings release, pages 2 and 31 of our presentation, and the non- GAAP reconciliations at the end 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 hand it over to Thank you, Tyler. Good morning, everyone. Thank you for joining us. Our adjusted results this quarter are highlighted by EPS of 53 cents, which is a 4% increase year over year. Over the last year, we've grown our commercial loan portfolio nearly $2 billion in line with our strategy of growing the balance sheet to generate sustainable returns and drive the most value for our clients. This quarter, we initiated the sale of approximately $4.5 billion of targeted residential mortgage loans as part of our broader realignment of the mortgage business. We entered into an agreement in October and expect to settle the transaction early in the fourth quarter. This transaction, along with the business line restructuring, is aligned with the strategy we have discussed consistently throughout the past year of prioritizing full client relationships, enhancing the profitability of our balance sheet, and driving improved earnings and returns through the cycle. This repositioning offers several important strategic advantages. It will serve our goal to utilize balance sheet capacity to profitably serve our clients and it will immediately enhance our goal of delivering top-tier financial returns. We continue to see steady C&I commercial and commercial real estate loan demand across our geographic footprint from both current and new customers. As outlined in our slides, the transaction will reduce our loan-to-deposit ratio to roughly 88% while maintaining strong capital ratios in line with our stated targets and allowing us to maintain our current share repurchase program. The financial impact will produce an approximately 4% EPS accretion in 2027 without considering the upside impact of deploying proceeds and incremental lending. As noted, we have conviction that this liquidity will support further growth in new core client relationships lending, which will meaningfully enhance our returns going forward. I'll turn the call over to Hope to walk through the results in more detail before I provide some closing thoughts. Hope? Thank you, Brian. Good morning, everyone, and thank you for joining us today. Starting on slide five, we provide key highlights of our performance this quarter. In the quarter, adjusted EPS declined to 53 cents on lower fee income and slightly higher provision expense in the quarter. Our adjusted ROPSI decreased to 14.4% in the corner. This is primarily due to the temporary impacts of the timing of capital use in the quarter, which resulted in an elevated average TCE ahead of deployment as part of the mortgage loan reclassification at quarter end. We continue seeing momentum with our strategic focus on relationship banking, with client deposits up more than $1 billion this quarter and NIM remaining in line with our expectations at 3.48%. On slide 6, we cover notable items in the quarter, which includes the impact of reclassifying the loans associated with our mortgage portfolio sale, which I will discuss more in just a moment. Additionally, we recognize costs associated with reorganizing parts of our business, which includes reductions in our mortgage line of business to align mortgage production more closely with core clients. On slide 7, we cover the expected mortgage portfolio sale in more detail. This transaction further ensures our balance sheet is aligned with our strategic focus on delivering relationship-oriented banking and focusing on safety and soundness, profitability, and growth. The loans in this transaction have minimal deposits of approximately $200 million and are concentrated in the lowest yielding portion of our mortgage portfolio with an overall weighted average coupon rate of 3.85%. 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 approximate 10% discount all in. Excluding further upside of yields from incremental lending, we expect the transaction to be accretive going forward with 2027 earnings per share benefit of around 4% and improved RODSI of approximately 150 basis points. Share buybacks will resume in Q4 in line with our CET1 targeted ratios for the year. This transaction puts our liquidity into an improved position as our loan-to-deposit ratio moves to approximately 88%. It provides immediate improvement to NIM and a future upside as we redeploy to higher-yielding loans while continuing to focus on client relationship growth with deposits and fees. Deployment into incremental lending in the coming quarters and years will further improve these results. On slide eight, we walk through our net interest income and margin performance in the third quarter. Our margin compressed by one basis point remaining settled in the high 340s. This reflects the rate of environment evolving into a flat to up expectation. We grew NII by $7 million this quarter, reflecting higher loan yields and includes customer deposit growth replacing broker deposits over the course of the quarter. We believe that the flexibility created by our mortgage portfolio transaction this quarter supports continued margin strength into next year and through the cycle, and we expect NIM to improve into the 350s. On slide 9, we covered details around our deposit performance in the quarter. Period end balances decreased by $0.4 billion compared to prior quarter, driven primarily by a decrease in broker CDs as we grew new client deposits approximately $1.5 billion. The average rate paid on interest-bearing deposits increased to 2.45%, which is a 12 basis point increase from the prior quarter. This reflects higher average broker deposits and higher customer deposit costs in the third quarter, which includes impacts from the resetting index client deposits. Our exit rate for the quarter on a spot and a September average basis is low single-digit basis points above the average for the quarter, and we do expect that the environment for deposits will remain competitive. As we enter into a rate increase cycle, we will focus on betas through the cycle targeting approximately 60%. As always, we remain focused on growing our core deposit base and prioritizing relationship growth as a way to sustainably and profitably grow our balance sheet. On slide 10, we cover our quarterly loan growth. Period end loans decreased $5.5 billion from the prior quarter, driven primarily by the reclassification of mortgage loans for the $4.5 million mortgage portfolio sale. Loans to mortgage companies decreased $891 million in the quarter, which steadily decreased in the quarters as rates rose. CNI, excluding loans to mortgage companies, decreased $96 million, and commercial real estate grew $97 million. Total line utilization ended the third quarter essentially unchanged from Q2 at 44%. This dipped in July and August before rising again in September to near prior quarter levels. Commercial lending remained competitive through the quarter. spreads on new lending are typically in the mid-100s to mid-200 basis points in the current environment. Turning to slide 11, we detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation, and is down $8 million year-over-year. We saw a 6% quarter-over quarter increase in fixed income revenues due to an increase in average daily revenue to $629,000. Higher ADRs were driven primarily by favorable restructuring activity during the quarter. On slide 12, we cover adjusted expenses that excluding deferred compensation increased $8 million from prior quarter. Other non-interest expense increased by $6 million driven by the timing of new account promotions and occupancy equipment increased due to internal technology projects and AI investments. Turning to credit on slide 13, NPLs remain flat at 81 basis points on a $49 million reduction in non-accrual balances driven by strong resolutions during the quarter. Net charge-offs increased by $3 million to $36 million, bringing our net charge-off ratio to 22 basis points. Excluding the mortgage restructuring impact, our provision for credit losses was $20 million in the quarter. Our ACL to loans ratio increased by one basis point to 1.25. This primarily reflects mixed shift associated with the reclassification of mortgage loans associated with our mortgage portfolio transaction. 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. Our tangible book value per share ended the corner at $13.84 and is down 5% quarter over quarter, also reflecting the impact on the mortgage portfolio transaction. Our tangible common equity to total assets ratio remains strong at 7.93%. Now I'll wrap up with slides 15 and 16. We shared some refinements to our 2026 outlook that include the impacts of the expected mortgage transaction, as well as the revenue impacts from the current rate environment. We continue making progress towards the $100 million plus PPNR opportunity discussed over the last 18 months and believe our balance sheet restructuring will provide further catalysts for return growth in 2027. And with that, I'll give it back to Brian. Thank you, Hope. The results in the third quarter position First Horizon for continued success, meaningful upside opportunities, and deepening strategic alignment. Over the past year, we have shared with you how our strategic framework provides clarity for our associates on the results we expect, understanding of the ways we earn our right to win, precision on the types of clients that value our approach, discipline on how we go to market, and urgency on the opportunities we have to further enable our strategy. Our third quarter results, which include an important business restructuring, a strategic portfolio transaction, and consistent banker engagement with our clients to deliver deeper relationships and drive profitability enable us to deliver enhanced profitability going forward. Thank you to our associates who continue to work hard at delivering these objectives. I reiterate my gratitude to our clients and shareholders who continue to be central to the first arising story. Erica, with that, we can open it up for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Arfstrom with RBC Capital Markets. Your line is open. Please go ahead. Thanks. Good morning, everyone. morning john hey good morning um just a question on the realignment brian not being critical but you know why now and how did you determine the size of the sale the four and a half billion and anything more left to do or is this it yeah uh so the why now is is it it one became clear that we're in a cycle of rising interest rates. We sized the portfolio based on trying to extract out or sell what was essentially non-relationship portfolio assets. And the intent there was mainly to create capacity on our balance sheet to fund continued growth in investing in longer deeper relationship opportunities that we see in the marketplace. And we believe that we have the asset generation capability to put that to use. So we looked at the portfolio. We tried to exclude anything that was related to private client or wealth. We try to basically extract a portfolio that was very minimal relationship outside of a loan transaction. And as Hope pointed out, When you do that, you come up with about $4.5 billion of loans, about $200 or so billion, excuse me, million dollars of deposit base in a low-yielding portfolio. So the timing was it was a low yielding set of assets, non-relationship. We thought we could use the capacity for other and deeper relationships. And then the tangential benefit is it gives us much greater flexibility in terms of how we think about competing in the deposit markets and the use of wholesale deposits on a go-forward basis. So we think it has very positive profitability characteristics. In terms of the work left to be done at this point, basically we should settle the transaction in the next few days to a week. we have to deliver some loan files and and we have a signed agreement so the transaction is essentially done at this point yeah okay good um and then maybe for you hope can you frame the assumptions around the four percent uh 2027 eps accretion i think you both mentioned some upside uh as you redeployed the proceeds but what what are you assuming right now in terms of the drivers of that 4% lift? Good morning, John. Thank you. The 4% is really the immediate lift, which is a portion of it going to pay down wholesale funding and the rest going into our securities rate at a very floating rate securities as we continue to, as Brian mentioned, redeploy this into loans. So that 4%, is really as we get the cash in in the next week or so, So, immediately putting that to work between paying down our wholesale funding and putting it in our securities portfolio in short-term floating rate. Okay. All right. Thank you very much. And, John, I'll add, while you're dropping off, I will add that you should start to see the benefit, you know, two-thirds of it or so beginning in the fourth quarter of this year. As Hope said, we get this closed, we'll start immediately reinvesting the cash. your next question comes from the line of ryan nash with goldman sachs your line is open please go ahead morning brian good morning hope morning ryan hope maybe to start you noted that you expect a 60 beta from the rate hike i think that implies about a 15 basis point or so deposit cost increased you know when we look in this quarter obviously deposit costs were up 12 without a rate hike so can you maybe just help us better understand the 12 basis point increase how much was related to the hike how much were client deposit costs actually up and do you expect there to be residual pressure outside of the you know the rate driven increases that we've seen do you expect those to persist thank you and have a follow-up thanks ryan um starting with the 60 beta comment that is through the cycle and so quarter to quarter depending on when you have a rate increase early or late in the quarter that is not meant to be a quarter in quarter out we also only had two weeks of this rate hike baked into this quarter when we look at the rate competition i've said this previously the summer months is the most competitive time for us is when you know we mentioned now three years running that we bring deposit we bring new customer deposits specifically in private client retail some of our commercial clients in at a promo rate you'll see the six million of expenses that we paid out this quarter which is the cash offers associated with those private client and consumer offers and then you start to walk those back so i do think a portion of what increased in q3 is similar to the last two years when we start to lead with rate before we deepen that client and walk it back as far as you know exactly what i expect in q4 ryan it really depends on the rate scenario do we see one height do we see two is it earlier in the quarter or later that's why i really focus on the beta part of it because i do think there'll be noise quarter to quarter if there has been in past rising and decreasing rates on how that leads and lags in a quarter but as i said in my prepared remarks we expect margin to be in the 350s next quarter and and continuing to focus on expanding that with the redeployment of this mortgage sale into higher-yielding assets. Ryan, one follow-on thought is in the third quarter, we did have a higher average balance of wholesale deposits, and they did pull the aggregate rate of home deposits up some over the quarter. And with this transaction and our ability to repay that, particularly as mortgage warehouses warehouses come down some. That should take some pressure off deposit costs. More macro, I've often said and long said that over time, technology, it started with the internet and cell phones and mobile technology provides a lot more clarity and upward, there's going to be some upward movement of deposit costs over time. I know here recently, there's been a lot of focus on agentic AI and tools like Muse and other things like that impacting deposit costs. And while that may be a long-term adoption trend, it's not something that we expect to have a lot of impact in the very near term that that will take a lot of time and and fundamentally i do believe that customer relationships customer stickiness is still an important part of the business and we believe that one our focus on relationships and all that will help us ameliorate some of the upward drift and and deposit costs over time it will not eliminate it but will help ameliorate some of that. But at the end of the day, we think that we have the ability in this rising rate environment to be very, very competitive. We think with the adjusted balance sheet with a loan deposit ratio at 88% or so, it gives us more flexibility. So we think we're extraordinarily well positioned to navigate this period of rising rates. gotcha um appreciate all that color and brian you know you've been relatively upbeat on loan growth um maybe outside of warehouse cni balances and cre had a little bit of growth a little bit of shrinkage maybe just talk a littlebit about the performance and and given the freed up balance sheet capacity how are you feeling about you know the ability to lean in a little bit further on loan growth. Thank you. Yes, I still am upbeat. And if you get sort of a political environment where the consumer is feeling under some degree of stress, and there are parts of the economy that are somewhat weaker than others, but generally speaking, demand in the economy is still pretty good. GDP growth, GDP now, Atlanta Fed, I think, is still around 4% for the fourth quarter. So underlying activity is still pretty Good. And we think that loan demand will continue to be reasonably steady. If you look at the mix of our balance sheets, you pointed out mortgage warehouse lending came down during the quarter. CNI was relatively flat. We're still seeing some funding up in commercial real estate deals. We follow the market in terms of prognosticating about what the future of rates will do, but it will have some marginal impact on the ability of the economy to create additional lending simply because more deals will not pencil out. But at the end of the day, we feel good about our asset generation capability. We have a unique set of businesses that are in many ways are national in our specialty lines of business, whether it be mortgage warehouse lending, where we can continue to, we think, win additional market share, our franchise finance business, our equipment leasing business, our trucking and transportation businesses. So we think our asset generation capability is still very strong on a relative basis. But I would put all of that against a backdrop. We're going to be smart about what the customer base and the economy gives us. We're going to pick our spots and participate. And we think that this economy, while solid, is still at a place where rising rates and inflation are likely to slow it down some as we transition into 2027 thanks guys appreciate all the color thank you the next question comes from the line of ibrahim punawala with bank of america your line is open please go ahead hey good morning morning how you doing just just good good brand hey hope I guess maybe just on this restructuring, maybe I missed it. When we think about the loan-to-deposit ratio shifting to 88%, I know you've been very reluctant, Brian, to deploy deposits to low-yielding government securities. But as we think of where it's resetting now, is that the new normal, and does that also sort of set the stage for you to be able to become a $100 billion-plus asset bank? where a mid to high 80 loan to deposit ratio feels the right place to be if you yeah thanks for the question um we do as i mentioned in my prepared remarks we will um put a good portion you know into securities uh immediately but we do expect to redeploy that into loan growth the intention is not to grow our securities portfolio um as we think about where loan growth will come from one of the comments Brian and I have made consistently on this call in conferences is our ability to grow loans previously was dependent on our ability to growth deposits balance both sides of the balance sheet. So, this does allow us to have some additional growth on the loan side with the deposit side slightly lagging. You know, whether it's either quarter to quarter or year or year, 88 percent loan to deposit ratio gives us a little bit more ability to loosen up those reins for the right side of the balance sheet to grow. As we think about where we redeploy this, we are, as I mentioned in my prepared comments, we are going to put it in floating rate securities. We are expecting rate increases in the coming quarters, so that will also increase the immediate payback as we see that forward curve play out. It positions us with a slightly more asset-sensitive balance sheet, which is is which is a positive we think in this rising rate environment and and we're we're not with with any in any measure reducing our desire to continue to grow the right side of our balance sheet to grow our deposit relationships and broaden and deepen and we've talked a lot over the course of the last year year and a half, two years, about our desire to continue to sell our treasury management products, to penetrate operating account relationships, and to continue to broaden and deepen with our credit customers. And we think that freeing up the opportunity to take this pool of largely non-relationship assets and move it off the balance sheet and create capacity to put more relationship generating assets on the balance sheet is going to be a net positive for that loan-to-deposit ratio over the long term. One additional comment on that is that the mortgage sale does shorten our duration and make our immediate asset sensitivity about 100 basis points higher in the near-term and a rising rate environment. Got it. So the action, obviously, from a client relationship, ROTCE, asset sensitivity understood. And maybe given just the change in the rate outlook or what's happened for the markets, talk to us about the mortgage warehouse business. Obviously, it's been an attractive business for you, but maybe how are you thinking about it today given where rates are headed? And just the health of the underlying clients, like are you seeing consolidation in that space? Just how should we think about where that may trend over the coming quarters or over the next couple of years? Yeah, I'll come right back to the mortgage warehouse question. I want to add one other benefit. And this repositioning of the balance sheet does not impact our ability to continue to repurchase or return capital, repurchased stock or return capitol to our shareholders. We have strong capital ratios and we're comfortable in this 10.25 to 10.5 range, and we intend to resume our repurchase program. With respect to mortgage lending or mortgage warehouse lending, the third quarter was unique in some ways. We talk about our countercyclical businesses and how through the cycle we tend to be less asset sensitive than stated in terms of our asset sensitivity disclosures because we have these counter cyclical businesses that perform in opposite direction. The third quarter was unusual in the sense that we started to see the impact on the counter cyclical business as well in advance of the Fed raising rates. And so we think there's likely to be a little less seasonality impact in the fourth quarter in mortgage warehouse lending. We'll see how that plays out with mortgage rates where they are. At the end of the day, the mortgage warehouse landing business came down about $900 million in the quarter. We think it peaked sometime in the second quarter of this year. So that is a very unusual dynamic. We think that we have built share in that business. We have broader lines, and we think we've deepened share with our customers. We expect that there will be some consolidation in the mortgage space. We think we're well-positioned to continue to serve that customer set, and we will continue to be there. We are positioned with strong participants, and while the economics of the mortgage business broadly for us and for everybody else will be a little bit tougher in a lower-volume environment, we think we'RE well-positioned. Tom, I don't know what you would add to that. Yeah. Good morning, EB. I would add that we've seen some, but not what I would call any outsized consolidation so far. A lot of these operators have obviously been through a rapid rate increase cycle only a handful of years ago. And so they're well aware of kind of what would happen in that environment again if we were to see multiple rate increases. So in terms of sizing their companies appropriately from an infrastructure and fixed cost, fixed expenses standpoint. We're working with very experienced operators. And so I would continue to expect very strong credit performance, even in the face of multiple rate increases. What I'll add to what Tom and Brian already said is this is not an NDFI line. We do table fund. So we have the underlying notes at closed so should something happen to one of our clients we have those notes we can sell them and so we don't have the same risk that some of the uh different mortgage warehouse structures have we continually talk about we've had one basis points of charge off annually in this business as long as we can go back and calculate because we hold the collateral at closing the other one is that we always point to is this typically stays on our balance sheet 19 days per note It's just from the time the deal closes to the time it is delivered to the other side. So if we were to see something happen in this business and we had concern, we can bring those lines down pretty quickly. Got it. Thank you for all the answers. Thank you. Thank you, good to talk to you. The next question comes from the line of Michael Rose with Raymond James. Your line is open, please go ahead. Hey, good morning, everyone. thanks for taking my questions. Just wanted to talk about the $100 million plus PPNR opportunity. I think the slides say you're about 40% of the way through. How should we think about the repositioning and the $45 million in after-tax benefits in relation to that? Should we think about this as in addition, or should we thinking about it as maybe just accelerating the progress and the path that you're already on? Thanks. Think about the 45 million, to use your word, in addition or incremental to the 100 million dollars pre-tax pre-provision efforts that we have in place okay perfect and then maybe if you can just outline um you know from here the the the extra 60 percent to get to the original uh amount um what what is still left to happen and how does the rate picture kind of potentially impact the timing thanks some of it is just timing when you annualize it as you deepen with customers we've talked a lot about our treasury management success with deepening with existing commercial clients on average when you deepen a treasury management relation for the client it can take three to nine months to actually get that treasury management relationship moved over because of their payroll their ap their ar it is a long process for them to move that all over so some of that is just the annualizations. When we say it's 40%, that's kind of an exit rate. And then you pick that up on a full year. The other is we continue to see great success with wealth. You know, we keep talking about how we've rolled out a new partnership with LPL. We've hired new wealth advisors. We're continuing to see that work as we deepen with some of our commercial business owners and others that already are a first rising client. And, then we introduce them to the wealth side of it. I would say those are the two biggest that we still have the tail on. We've continually talked about loan-only relationships, low economic profit, low only, and not renewing those at renewal if we can't get the profitability up or deepen the relationship. This mortgage sale goes hand-in-hand with that. These are mortgages that were seasoned on our balance sheet where we did not deepen the relationship. So Brian's first question, this is additive to the number, but is completely in line with how we've been rethinking our portfolio to increase profitability for every single dollar we lend out. That's very helpful, Hope. And I don't want to get ahead of myself and ask about 2027, but just given the benefits from the repositioning, how much opportunity is there as we think about incremental investment in the franchise, in things like you mentioned, Hope, just on treasury management wealth, also leaning into commercial loan growth? to, you know, basically how should we think about positive operating leverage for next year? I know it's early, but just trying to better understand the outlook there. Thanks. We do not expect to, in, you know, have a significant reinvestment like we did three years ago coming out of the termination. We believe we have the right run rate of expenses. We continually say we'll be inflationary from here on out for expense growth year over year, and we expect positive operating leverage next year? Michael, we see a number of opportunities to continue to invest. So our plans today would include refreshing banking centers, building new banking centers. Continuing to hire, to invest in technologies, etc. And we feel good about our ability to control our expense base. We think we have enough levers in that. We will feel some of the impacts of inflation and certain things like health care and costs and in general, inflationary type costs. But we think we can maintain a reasonable growth rate in our expense base that we can deliver positive operating leverage into 2027. And I would say, as we sit here and think about 2028, that's our plan going into 2028 as well. Very helpful. Thanks for taking my question. Yeah, sure. Thank you. The next question comes from the line of Bernard Von Giziki with Deutsche Bank. Your line is open. Please go ahead. Hi, guys. Good morning. Just on commercial real estate, it seems expectations have improved throughout the year. I just wonder if you could just share some thoughts on forward expectations and how that look for higher rates impacts that at all. Yeah, sure. Good Morning, Bernie. I'm happy to answer that one. The commercial real estate group has had a lot of momentum, but most importantly, we've remained very disciplined in how we manage that book. And so my expectations are, you know, if rates go up, I would expect this to continue to perform very well. And I think the two main reasons I'll point to, one is if you look at our strong loss history, if you go back to the start of 2023, when we were seeing our peak interest rates, since then our CRE net charged us about average 17 basis points. And so I think that speaks to even in a high-rate environment, our discipline really holds up. And those numbers I mentioned are on projects underwritten in a very low post-COVID rate environment. Obviously, the more recent vintages are underwritten to higher interest rates. The other thing I'd point to is, you know, especially on the multifamily side, I think the real root cause has been supply and absorption rate. on the supply side, COSTAR shows since the peak in 2022, starts at down 70%, units under construction at down 50%. So there's a lot more supply coming on. And then on the absorption side, with what consumers are dealing with right now, on top of elevated home prices and higher interest rates, renting is relatively more attractive than buying. And so I think the absorption will be there as well. Okay. Thank you. And then just as a follow-up, maybe just on the fixed income side, it seemed maybe it came in a little bit better than expected, I mean, just given the rate vol during the quarter. And you did highlight some higher client restructuring activity. I'm just wondering, is that maybe just specific to the quarter? Do you think that kind of continues? Just kind of some thoughts on the go-forward expectations on some of those trends. yeah we have continued to see you know in this business over time that as you enter a rising rate environment a quick rising rate or quick decreasing rate some of our clients will try to get ahead of that and restructure their balance sheet we saw this when rates were decreasing about this time last year and i do think depending on how quickly rates increase if we do i don't know where the forward curve is this morning but yesterday it had one and a half increases in the back half of the year, I do believe that we could see additional restructuring, but it really is very related to how quickly rates move up and down and our client's appetite to try to hedge that in advance. Great. Thanks for taking my questions. Thank you. The next question comes from the line of Ryan Kenny with Morgan Stanley. Your line is open. Please go ahead. Hey, good morning. Thanks for taking my questions. Can you unpack what you're seeing in terms of non-interest-bearing deposit balances and mix shift? On one hand, you could argue customers are already broadly optimized, you're growing operating accounts, you'RE deepening relationships. But on the other hand, we have some rate hikes in the forward curve. So how do you think about NIP mix? And is there a scenario where NIP balances and IP balances can grow? yeah on the first part we're not seeing mixed shift and we haven't seen it for well over a year now customers that you know were rate sensitive had already taken advantage of that in a rising rate scenario and we had stabilized what we are seeing is the cost of inflation has them have less money in their operating and checking accounts right they're spending it more quickly so their average balance their uh their average days at a higher balance a little bit lower. We absolutely believe that we have a franchise. We have a product set and bankers that can continue to grow deposits, both in non-interest bearing and interest bearing, as you saw this quarter. There's always seasonality in deposits with commercial clients when they pay their annual taxes or there's seasonality around consumer and private client around tax season or bonus season, but we absolutely believe we will continue to growth both of those in the coming quarters and years as we refocus on long, strong relationship business with our clients. Yeah, if I had to take a side on the trade, I'd say customers are much more optimist optimized today than they were a year ago or six months ago. It's been a lot of there's a lot Of data out there about rates, there's very good transparency in the marketplace. And as Hope said, most of the mix shift we see today is just in sort of spending patterns. And as a follow-up, in terms of your capital priorities, so you used some capital for the mortgage sale. It seems like looking forward, you'll use some capital resuming buybacks, for loan growth. Is it a fair interpretation that this means less of a priority to maybe use capital for a depository acquisition? Well, I think that's one of the tangential benefits is I've talked about over the last year, the optionality about doing something small that would create incremental liquidity, I think that makes that significantly less of a priority in our view and in many ways deals with that need. So capital priorities are one, investing in customer growth, customer and balance sheet activity to being smart with our capital and repatriating it to shareholders opportunistically through repurchasing shares in the marketplace. And we have a little over $660 million of capacity remaining. So we're in a good place to have a lot of optionality around investing with customers and returning capital to shareholders. Thank you. Very clear. Yeah, thank you. The next question comes from the line of Janet Lee with TD Cowan. Your line is open. Please go ahead. Good morning. Could you unpack a little bit about the decline in core CNIX LMC? You talked about how the line utilization dipped in July and August before rebounding again in September. Is there any more things that could explain the decline in CNI outside of those July and August being summer months? No, not particularly. The loans to mortgage companies is really seasonally driven as well as just the interest rate environment. In terms of other core CNI, as you would expect, there were increases in some sectors and decreases in other. any uh any major driver in one direction or the other it's speculation slash projection but but i think you know customers are like all of us i see headline fuel cost inflation going up significantly during the course of the summer diesel fuel supplies you see a lot of competitive dynamics and i think people are just being thoughtful about you know where are we in the the economy. What's next? And I don't read anything into it of a negative bent at this point. I think it's just ordinary course of business. We increased the level of lines that are outstanding in the quarter, and I fully expect that over time, customers will take those lines, use them, and put them to work in growing their businesses. Right. Thank you. So it seems like you're expecting for commercial lending growth momentum to increase versus the third quarter on the mortgage sale. So it looks like the 4% EPS accretion seems like a floor since that's not assuming any benefit from partial deployment into higher yielding loans. Can you help us quantify what partial means here of the $4.5 billion coming off the balance sheet? How much should we expect to redeploy into CNI and CRE? Is mid-single-digit kind of growth still a right place to be? Well, yes, I think, you know, the pro forma is invested in securities. And my working assumption is that over the next two to three years, we can deploy, you now, half of the $4.5 billion, as we call it, a little over $2 billion in incremental loan growth activity over the next two to three years. Again, it's dependent upon what the economy gives us and how interest rates and inflation impact things, but we think with our asset generation capability, we can pick up incremental growth in that range. Got it. Thank you. Thank You. your next question comes from the line of jared shaw with barclays your line is open please go ahead hey good morning um so you know just going back i guess to to the bigger strategic view with this sale um should we expect any additional bigger moves to execute on that five flag strategy Or is it more of like, you know, executing on the blocking and tackling, like Hope mentioned, around treasury management and wealth management and things like that? Yeah, I think in terms of a big balance sheet, profile changing things, I wouldn't expect anything else at this point. I think you used a great phrase, blocking and tackling. The $100 million is a blocking and tackle exercise. Hope did a great job describing some of the actions, but it really is customers work on cycles, our relationship with them on cycles, and it really has hundreds if not thousands of bankers every single day interacting on sort of the premise that I laid out in my prepared comments that we want to broaden and deepen customer relationships and thinking about how we proactively look for opportunities to deliver more valuable more valuable advice counsel and support for our customers and at the same time deepen our relationship but it is a blocking and tackling exercise okay thanks and then just a follow-up for me more uh bookkeeping when we look at the securities portfolio apart from what you're going to be putting in from from this sale what's um what's the cash flow been looking like there and what's your your new reinvestment uh rate versus the roll off on that yeah jared we have that in our deck i'm just trying to turn the page i think it's approximately one uh billion of securities with a roll-off yield of currently 2.9 percent and as of today you know floating rates in the mid 450s with mid four sorry so far plus uh if we do see rate increases obviously that that two nine gets higher as a reinvestment that you know mid fours moves up 25 50 basis points etc so far and fed funds move up in the future quarters great thank you thank you your next question comes from the line of anthony a lion with JP Morgan. Your line is open. Please go ahead. Hi, everyone. Can you help unpack what drove the reduction to the revenue outlook? You've tailwinds to NII from the bottom of slide eight, and you noted a few times hope that NIM is expected to increase to the 350s in 4Q. But is that not enough to offset the lower counter cyclical revenue in 4 Q? Yeah, thank you for the question. I think we're sitting right at about 4% for the first nine months of the year. If you look at Q4 of last year, it's not as much about momentum quarter over quarter, but we had a really strong Q4 last year in our counter cyclicals. It was a high point for mortgage warehouse balances, which is typically a low point of the years. They had a significant increase in Q4. We also saw really strong ADR in FHN Financial that we do not expect to repeat in Thank you. And then on expense, you saw a step up in expense ex deferred comp in 3Q, but you're still pointing to flat for the full year expense range. I think that would imply a step down in 4Q. What's driving that and the unchanged expense outlook? I ask because if I look at the past few years, 4Q expense has been up sequentially. Thank you A few things in that. is the timing of our cash incentives that were paid out for deposits was a high point. If you look at non-interest expense in Q2, Q3, and Q4, there is absolutely seasonality in that line. The other is really as we think about completing multiple technology and AI investments, we're starting to see the expense realization come in. And the third part of that, as we talked about, we had a restructuring of our mortgage business as well as some other smaller restructurings in the quarter that reduce our go-forward run rate for personnel and associated costs with that. Thank you. Thank you, your next question comes from the line of Timur Brezier with UBS. Your line is open, please go ahead. Hi, good morning. A little more on the restructuring. Good morning, Just the near-term opportunity in terms of wholesale reduction versus securities purchase, I guess, what portion of the proceeds are going towards reducing wholesale? We don't have that exact number yet. I think it's really, we're looking through all the scenarios. As we mentioned in our prepared remarks, we just closed on this transaction last week, and we expect to close this month. So we're still in the early phases of putting that all back to work. I do think it's more a mix into securities and wholesale funding. As Brian mentioned earlier, we did end the quarter with higher wholesale funding than we needed due to the way you ladder that out. You make a 30-day, 60-day commitment. We brought in more client deposits so that wholesale funding will come down beyond just the impact of the sale. Got it. And then maybe bigger picture, I guess, what does this restructuring transaction say, if anything about First Horizon's willingness to remain independent? And does this broadly change anything from a strategic optionality standpoint going forward? I think in broad terms, it increases our optionality. It creates a more profitable customer-centric balance sheet. We remain as flexible in terms of our capital repatriation. And while I've said many, many times over the last couple of years. We're going to continue to operate the business with a long-term vision of creating value for our customers, our communities, our shareholders, and our associates. We're not changing or reducing, in our view, any optionality we have for the future. I just need to clean up my words per my legal advisement here. We finalized last week and we settled this month. Apparently, I got my legal terms backwards on the transaction, so there's Got a little note from our legal team. Just want to clean up my language there. We signed a sale agreement. We'll close it. Correct. Want to make sure it's appropriately recognized in the transcript. Yep. Thank you. Thank you, Your next question comes from the line of David Chiavereni with Jeffries. Your line is open. Please go ahead. Hey, guys. Good morning. This is Brooks Dutton on for David Chiaverini. You mentioned that the sale adds about 100 basis points of near-term asset sensitivity and the proceeds go into floating rate securities. You guys still have some received fixed swaps maturing in 2027. And then in the hiking cycle, would you restructure or unwind any of those hedges or let them run off and keep the extra asset sensitivity? Thank you. Great question, Brooks. and I'll say we're always evaluating what our options are, but bringing down the duration of the portfolio was a positive to this transaction. But we are not, as Brian mentioned earlier, we're not in the near term looking at any other transactions at this time, but we're always reevaluating our balance sheet based on changing rates environments, whether it's increasing, decreasing, flat. So that is part of our regular cadence to look at our asset sensitivity and make sure that we're hedged correctly on both sides of the balance sheet. And I know this is somewhat repetitive, but as I mentioned earlier, we do think about the countercyclical businesses in terms of our aggregate sensitivity business. So we're never quite as asset sensitive in a rising or a falling rate environment. So when we look at balance sheet derivatives. We look at it in total and how the balance sheet will perform in our view through an earning cycle. So we'll make those decisions as we get closer. Great. Thank you for the question. Thank you. Your next question comes from the line of Casey Hare with Autonomous Research. Your line is open. Please go ahead. Great, thanks. Good morning, guys. Just one more to me, the 60% beta, I guess my question is why is that not lower through the cycle? I mean, that very much lines up with what you guys did in the last hike cycle. And it sounds like you guys are, with the stronger liquidity profile, you're more willing to let loan growth pick up and deposit growth kind of lag. So that would give you the opportunity in theory to do better than that 60% deposit beta. Just wondering why that's still the target and whether or not that's conservative. Thanks. I would say that target's a little bit lower than what we saw through the last rising rate cycle because we had the banking crisis in there. We actually topped out closer to 70, so it is slightly down from that. I think it's an early guess, Casey. The question is how much, as we've talked about every call, it is a competitive environment for deposits. how much loan growth is there in the environment impacts what the competitive nature of deposits is. Is the balance sheet going to shrink at any point in that cycle? And so I say use it as a proxy, but absolutely, we would love to beat it. Great. Thank you. Thank You. Your next question comes from the line of Edward Najarian with Hovde Group. Your line is open. please go ahead. Good morning, Hope and Brian. Most of my questions were answered. Just a quick question on capital deployment and stock buybacks. Brian, you mentioned that you're going to continue to, you know, you're gonna resume the stock buyback. You were buying back, you know, very rapidly, really through the first quarter, a little bit less in the second quarter, and then stopped in the third quarter. Now you're down to 10.3% on CET1. I guess two questions. First is, the moment this transaction closes next week or whenever that is, to what extent does that enhance the 10.3% CET-1? Do you step up when these things go off? And then to what extend is that? And Brian, could you give us any sense of how rapidly or you know what kind of focus you have on on buying back stock in the near term uh and and is there sort of a low threshold whether it's 10.25 or whatever it is that you don't want to drop below on cet1 thank you yeah so it's been a long time having a good talk to you the uh um yeah brian it's been a long time good good talk to you again yeah um but buyback is is one of those things that we're opportunistic about and and as we look at capital we look at it relative to a number of risks in the balance sheet everything from our stress testing to our bottoms-up analysis of capitalization. And we think we're very comfortable in that 10 and a quarter to 10 and 1⁄2 range post this transaction. We expect to continue to generate a fair amount of capital, which will support growth. We suspect that we have the ability to continue to repatriate capital to shareholders. So there's not a hard floor. There's not a hard ceiling. We continue to, as a board, to sit down every quarter as we go through our financial performance and the outlook on the economy to evaluate where we are. But given this transaction, where we are post the sale of the loans and our outlook on the economy, credit, so on and so forth, we do think we have capacity to use a portion of this buyback in our capital base to repatriate some capital in the fourth quarter and going into the first. We have been opportunistic over the course of the last couple of years, and we have repurchased a significant amount of stock. And clearly, when it's, in our view, on sale at prices like we see in the market over the last week or two as the industry has calmed down, we will continue to use that as an opportunity to buy. Thanks. Hope, is there any kind of a projection or levels we should think about where CET1 would be the moment, the day that these loans actually leave the balance sheet? No, it's not a material impact that we've already marked on. That's how we use capital this quarter. I talked about in my opening remarks that average TCE was much higher than period end TCE. We marked these all at quarter end when we entered into an agreement to sell these. And so that has already happened. What we did have to do is stop all share buybacks. When you're in a discussion of something like this, regardless of what your capital target is, you cannot be in share buyback. We do not do an ASR. We stay active in the market throughout the quarter so that we have leverage to say if we uh you know you mentioned the prior quarter we had really significant loan growth in prior quarter which we put that capital use in and then use the delta to figure out how we get within our cet1 target um we don't set a dollar amount at the end of each at the beginning of each quarter or with our board for in quarter we really look at how do we deploy capital to loans first and then shareholders second targeting that cet1 as kind of our denominator on that calculation Okay. Okay, great. That's very helpful. Thank you. All right. Thank you. Your next question comes from the line of Christopher Maranek with Breen Capital. Your line is open. Please go ahead. Thanks. Good morning. I wanted to ask a question to Tom about CNI losses, and I know we've got the broader guide for losses for the year, but just curious at the CNI level that we've seen this quarter and last quarter, is that still a good number in the near term, or would you expect that to change either side? Yeah, good morning. CNI net charge-offs have been fairly consistent. Obviously, quarter to quarter, there's some ups and downs, but it's remained relatively consistent. I don't have any reason to believe it would materially deviate one way or the other in the upcoming quarters. Probably not surprising where it's coming from is generally things that are more closely tied to discretionary consumer spending in the current environment. So discretionary customer, retail trade, some manufacturing, that's essentially kind of where we've been seeing it. But it's largely, this is Brian, Chris, it's largely idiosyncratic there's no huge patterns developing okay great thank you both for that and then just a related question the balances we've seen on the unfunded cni we could still interpret that as a kind of net growth of customers both new and existing on the platform yeah yeah in terms of on putting unfunding commitments onto the balance sheet is net growth and customer broadening and deepening the customer relationships and new customers. Yeah, that's right. Very well. Thanks for taking all of our questions this morning. No, thank you. Your next question comes from the line of Ben Gerlinger with Citi. Your line is open. Please go ahead. Hi, good morning. I just actually want to follow up a little bit on Casey's question about deposit betas like isn't the one sale here gives you liquidity or reduces your loan to deposit ratio like isn t that kind of the positive here is that your overall beta shouldn t be as pressured to kind of in theory hot money type clients looking for more yield or is it potentially like you might have it s continued loan or deposit balance growth I m just kind curious on why the debate wouldn't be like a step lower over this next hike cycle well i hope can give you a mechanical answer that i'll give you my 40 000 foot view and it is we're forecasting out a cycle and and the competitive landscape and and what happens is is a little bit unknown to us us like it is to everybody else. And so we're placing a forecast out there that's in line with what we've seen in past cycles. We are going to optimize our deposit pricing capability as best we can. But it is important, as I've said in the past, to note we're not playing solitaire in the marketplace and that we're going out there competing to broaden and deepen customer relationships we're looking to acquire new customers and so we think in a context plus or minus 60 percent that that we can operate in that area and that that is our outlook i i would not try to read too much into or or fly spec whether that's 58 or 62 at this point because there are too many unknowns in the operating environment. But we are at every single day looking for how we strike that balance with providing real value to customers and prospective customers and do it in a way that drives profitability. What I would add to that, Ben, is you asked the question about hot money. We don't chase hot money, we do not have a large CD portfolio, we don't have a national deposit franchise where, you know, we market higher rates, you know, across our footprint. But we do have clients that want to be treated fairly and get a fair value. And so if they see the rates moving up, they're going to call their banker here and says, hey, I've seen this or I've been called from other bankers. So a lot of it is protecting your back book and protecting your client relationship. We do run an asset sensitive balance sheet. Andso a lot our clients, as was asked a lot of credit questions, their cost of funding is going to go up with each rate hike, to the extent that they have interest-bearing deposits with us, they're going to try to offset that as an earning asset. And so don't think about it as chasing hot money. We continue to put in our earnings deck that we retain 90 plus percent of clients each quarter in the depository space, but that requires us to pay them fairly once they're in, not just reward a new customer with top of market. That's how we retain those relationships. Got it. Thank you. Oh, thank you. Your next question comes from the line of Chris McGrady with KBW. Your line is open. Please go ahead. Oh great. Thanks for squeezing me in. Brian, you obviously have the capital to do this trade. I'm interested in the discussion about earn-backs with this. Obviously, there's earnings initially and earnings over time, but relative to buying back the stock, and the answer might be you could do both, but the earn-back on paper looks long, but just any color behind that decision would be great. Thanks. Yeah, I would say the earn back on paper is the minimum. That is your immediate return if we just put this all in securities and you don't see significant rising rate environment. So, when we think about the payback, we are assuming that, you know, as Brian said earlier, approximately half of this is redeployed into loans in the coming years, and that payback comes significantly in line. I'm not sure what assumptions you were using, Chris, in your question there, but I do want to reiterate what we put in the ADEPT is the immediate impact in the current rate scenario. Yeah, the earn back, if you just assume we invested in floating rates, short-term securities, that is a longer earn-back. If you assume, like we believe we can, that we can invest in incremental customer relationships over the next couple of years, call it half of the proceeds, the earn-backs comes in very favorable vis-a-vis a stock buyback. Got it. Thank you. To put that in line with my earlier comments, we talked about securities being so far plus 50 currently and we talk about our loan deployment being in the so far plus mid 100s to mid 200s and so for every you know dollar that you redeploy you pick up much more 100 plus basis points more on average than what will be in the securities day one so what we try to do is tell you what the immediate impact is and then it's upside from there as to how quickly we redeploy it at 100 150 or 200 basis points higher than what it'll be in securities day one great thanks thank you the last question comes from the line of russ under anderson with evercore your line is open please go ahead good morning this is russ anderson on for john pancary uh thanks for taking my question just on you know tom you touched on the credit performance and um of siri and the multi-family supply picture could you just talk a little bit more about what you're seeing in updated property valuations and refinancing you know borrowers having to bring more equity to the table or cash flows generally supporting renewals on existing terms thank you yeah we actually continue to see a very robust market for refinancing Cree development deals. Some of this is commercial banks and some of it is private credit. There's a lot of deals on that market that's what's contributed to actually very fast refinancing. I haven't slowed down the evaluation in the decades, such as when we texted off the lowest supply bills cases in Canada the most, even in the past. Mark, I've always seen a re-evaluate and updated decrease to about 20. And what I would say is that we consistently rip in the 60% cost lower than that loan. And we have significant deals to extend. So in environments that years ago to the current environment without the confidence as to why we've been able to suddenly roll off sorry could you guys hear us on that last answer i've got some feedback uh that we maybe have some audio issues in that last answer. That was a little choppy, but... We're still live on the line. I know we've gone over. Tom, you want to repeat that? That'd be great. Yeah, I'm happy to repeat that. What I was saying is, overall, the refinance market has actually remained pretty solid. We've seen a number of our deals taken out by commercial banks, but also by private credit, and much more often than not without any additional equity coming in. That's because overall property values have held up, I think, relatively well relative to expectations, even in markets with the greatest oversupply, like the markets in Texas, where we've seen updated appraisals. Generally speaking, kind of where we have seen decreases, even kind of the higher cases of those, it's been about a negative 20%. And considering we've been very consistent in always underwriting to about 40% equity coming into deals, and so 60% LTC, we've able to absorb any of those decreases and still maintain a healthy amount of equity in our deal. So I was pointing to, I think that's a big contributor that this discipline we've kept and not chasing the market. That's why even in peak interest rates, we have continued to perform very well in our CREE portfolio. Great. That's it for me. Thanks for taking my question. Thank you. There are no further questions at this time. I will now turn the call back to Brian Jordan, Chairman, President, and CEO for closing remarks. Thank you, Erica. Thank you all for joining us this morning. I appreciate your interest and patience as we try to work through some of the complexity of this quarter. We think we're very, very well positioned for the fourth quarter and in 27. Please reach out if there's anything at all we can do to give you additional information. Hope everyone has a wonderful day. This concludes today's call. Thank you for attending. You may now disconnect.