First Horizon Q3 Loss Reflects Mortgage Sale Charge; Adjusted EPS at $0.53

First Horizon (NYSE: FHN) reported a third-quarter 2026 loss after recording a $473 million charge tied to the pending sale of about $4.5 billion of residential mortgage loans, a transaction intended to reduce balance-sheet duration and shift capital toward core client relationships. Excluding that charge and other notable items, adjusted earnings remained profitable, with diluted earnings per share of $0.53 compared with $0.54 in the prior quarter and $0.51 a year earlier.

The bank posted a GAAP net loss available to common shareholders of $94 million, or $0.20 per diluted share, compared with net income available to common shareholders of $260 million, or $0.54 per share, in the second quarter. The quarter included $347 million of after-tax notable items, equivalent to a $0.73-per-share reduction.

The mortgage-related items included the $473 million loss, partly offset by a $45 million provision reversal following the portfolio’s reclassification as held for sale. First Horizon also recorded $3 million of restructuring expenses and a $5 million Visa derivative valuation expense. The mortgage transaction’s financial impact was recognized in the third quarter, with settlement expected early in the fourth quarter.

Adjusted revenue holds broadly steady

Adjusted net income available to common shareholders was $253 million, down 4% from both the prior quarter and the year-earlier period. Adjusted pre-provision net revenue, on a fully taxable-equivalent basis, was $362 million, down 1% sequentially but up 3% year over year. Adjusted return on tangible common equity was 14.4%, compared with 15.3% in the second quarter.

Adjusted revenue on a fully taxable-equivalent basis declined 1% from both comparison periods to $883 million. Net interest income rose 1% sequentially and year over year to $686 million on the same basis, supported by higher loan yields and the number of days in the quarter.

Net interest margin was 3.48%, one basis point below the second quarter and seven basis points below the prior-year quarter. Interest-bearing deposit costs increased 12 basis points, reflecting the carryover of brokered deposit balances and higher client deposit costs. Loan yields increased six basis points sequentially to 5.73%.

Adjusted fee income was $197 million, down 7% from the second quarter and 9% from a year earlier. Excluding deferred-compensation income, adjusted fee income increased $3 million sequentially to $198 million. Fixed-income revenue rose $3 million as average daily revenue increased to $629,000, while service charges and fees and brokerage, trust and insurance revenue each increased by about $1 million.

Adjusted noninterest expense declined 1% sequentially and 4% year over year to $521 million. Excluding deferred compensation, however, expense increased $8 million from the second quarter. That increase included higher technology-related occupancy and equipment costs and a $6 million rise in other noninterest expense, primarily associated with the timing of new-account promotions. The adjusted efficiency ratio improved to 58.9% from 59.1% in the prior quarter.

Mortgage sale reshapes the balance sheet

Period-end loans fell 8% from the second quarter and 5% from a year earlier to $59.8 billion, primarily because the residential mortgage portfolio was transferred to loans held for sale. Loans to mortgage companies declined by $891 million sequentially, while commercial real estate balances increased by $97 million. Commercial and industrial loans excluding loans to mortgage companies decreased by $96 million.

Period-end deposits were $67.7 billion, down $372 million from the previous quarter but up 3% year over year. Client deposits increased $1.5 billion sequentially, offset by a $1.6 billion reduction in brokered certificates of deposit. The period-end loan-to-deposit ratio fell to 88% from 96% in the second quarter.

First Horizon said the mortgage realignment is intended to improve liquidity, reduce asset duration and create capacity for disciplined new lending. The company estimates the transaction could add about $45 million of after-tax earnings, or roughly 4%, in 2027 and improve return on tangible common equity by approximately 150 basis points. Those estimates are relative to a consensus forecast dated October 2, 2026 and exclude potential benefits from redeploying proceeds into higher-yielding loans.

Credit remains stable as charge-offs rise

Adjusted provision expense was $20 million, excluding the mortgage portfolio reclassification, up from $15 million in the second quarter. Net charge-offs increased to $36 million from $33 million, with the annualized charge-off ratio rising two basis points to 0.22% of average loans.

The nonperforming-loan ratio held at 0.81%, while nonaccrual balances declined by $49 million. The non-GAAP allowance for credit losses represented 1.25% of loans, one basis point higher than in the prior quarter, with the company attributing the change to the portfolio mix following the mortgage reclassification.

First Horizon’s estimated common equity Tier 1 ratio declined to 10.3% from 10.5%, reflecting the mortgage reclassification and related transaction items. Tangible book value per share fell 5% sequentially to $13.84, as the notable-item impact outweighed the contribution from adjusted earnings. The company repurchased $4 million of shares during the quarter and had $661 million remaining under its authorization.

2026 outlook targets low end of revenue range

Management now expects 2026 adjusted revenue, excluding deferred compensation, to finish at the low end of its prior 3% to 7% growth range from a $3.42 billion 2025 baseline. The outlook reflects lower countercyclical revenue in the second half and the timing of interest-rate moves.

Adjusted expenses excluding deferred compensation are expected to remain approximately flat against a $2.05 billion baseline. First Horizon maintained an expected net charge-off range of 0.15% to 0.25% and a tax-rate range of 21% to 23%. Its near-term CET1 expectation is 10.25% to 10.5%, compared with the prior target of about 10.5%.

Key uncertainties include deposit pricing, future interest-rate changes, credit losses and execution of the pending mortgage sale and balance-sheet redeployment. The investment portfolio also carried $1.1 billion of unrealized losses at quarter-end, up from $0.9 billion in the second quarter. The company cautioned that its forward-looking targets depend on economic, operational and competitive assumptions and that actual outcomes could differ materially.