First Horizon (FHN) Q3 2026 earnings review
First Horizon sells its mortgages, but its revenue outlook shrinks
First Horizon took a large loss to sell off low-yielding mortgages, while its underlying profit stood still. The Memphis-based bank booked a $473 million charge on about $4.5 billion of home loans it agreed to sell. Profit per share excluding that charge was $0.53, roughly where it has sat for a year, a result chief executive Bryan Jordan called "a testament to our disciplined approach and clear strategic priorities". By our math, the lowered revenue plan leaves almost no growth for the fourth quarter.
| Profit per share, excluding one-offs | $0.53 $0.51 a year ago |
|---|---|
| Reported loss per share | −$0.20 $0.73 of one-off charges, mostly the mortgage sale |
| Net interest income | $686M +1% from a year ago |
| Full-year revenue outlook | Cut to the low end of 3%–7% was the full 3%–7% range in July |
⚖️ Verdict: 🔴 Bearish
The story got worse because First Horizon cut its revenue outlook to the bottom of its range and its core commercial loans stopped growing. Deposit costs climbed faster than loan yields even though the Fed raised rates. The good news: the mortgage sale should add about $45 million to next year's profit, and bad loans fell for a third quarter.
The question now is whether the mortgage sale buys growth or only shrinks the bank. If First Horizon lends the proceeds to businesses at better rates, net interest income turns up next year; if commercial demand stays flat, it has given up income without finding new borrowers. The fourth-quarter loan book will give the first answer.
🐂 Bull Case
The $100 Million Profit Plan Is 40% Done
First Horizon set out last year to add $100 million of pre-provision profit, the income a bank earns before setting money aside for bad loans, by selling more services to existing clients. For a year it declined to say how far along it was. This quarter it did: "~40% achieved since mid-2025".
- Joint work between regional and specialty bankers: about $10 million a year
- Wealth management: about $8 million recognised
- Treasury management, the cash-handling service for business clients: about $7 million a year
- Commercial property loan pricing: about $2 million
That matters because the plan is the bank's main answer to flat lending, but the four items add up to roughly $27 million, so part of the progress is not itemised. By our math, underlying pre-provision profit rose under 1% from a year ago. That strips a $20 million charity gift and $12 million of one-off interest income out of last year's quarter.
What to watch: the same slide at the fourth-quarter results. If the itemised total passes $40 million while underlying pre-provision profit grows faster than 3%, the plan is showing up in the numbers.
Fees From Wealth and Deposit Clients Keep Growing
First Horizon earns fees two ways: trading bonds for other banks at its FHN Financial unit, which swings with interest rates, and serving its own clients through brokerage, trust, insurance and account services. The client side is where the bank wants steady growth, and this quarter it got it.
- Brokerage, trust and insurance fees: $46 million, up 17% from a year ago
- Service charges and account fees: $60 million, up 4%
- Fixed income trading: $49 million, down 15%
- Mortgage banking: $8 million, down 48%
This matters because the client lines grew enough to offset a weak year in trading. Fee income excluding deferred compensation, a pay-related item that nets out against expenses, rose $3 million from the second quarter. It still sat $8 million below a year ago, so the growth replaces lost trading revenue rather than adding to it.
What to watch: brokerage, trust and insurance fees in the fourth quarter. Another double-digit gain would show the wealth push is adding clients, not riding one good quarter for markets.
Bad Loans Fell for a Third Straight Quarter
Nonperforming loans, loans whose borrowers have stopped paying on time, dropped to $482 million from $531 million three months earlier. Commercial property drove the improvement, because its problem loans are down more than 40% from a year ago, and the bank's reserve now covers 155% of what is left.
Charge-offs tell a slightly different story. Net charge-offs, the loans First Horizon gave up on and wrote off, rose to $36 million from $26 million a year ago, and business loans did the rising. Profit also got a $16 million lift because the bank set aside less for future losses than it wrote off, as it has every quarter this year. So the credit picture is good, but it is flattering earnings a little.
What to watch: the charge-off rate in the fourth quarter against the 0.15–0.25% full-year plan. A reading above 0.25% would mean the problem-loan decline came from write-offs rather than repayments.
🐻 Bear Case
Revenue Outlook Now Sits at Bottom of Range
Since January First Horizon has told investors that revenue excluding one-offs and deferred compensation would grow 3% to 7% this year, and in July it repeated the full range. This quarter it moved the target to the low end, because of "lower countercyclical revenue in 2H26 and timing of rate moves".
Countercyclical revenue is the bank's term for the businesses that do well when rates fall: bond trading at FHN Financial, loans to mortgage lenders and mortgage banking. All three shrank from a year ago. Daily trading revenue fell to $629,000 from $771,000, and the Fed raised rates during the quarter rather than cutting them.
By our math the low end leaves about $896 million of revenue for the fourth quarter, up under 1% from a year ago. The plan six months ago pointed to a fourth quarter near $964 million. That gap is the quarter's main news, because the step-up the bank had defended for nine months did not arrive, and nothing in the fourth quarter so far suggests it will.
What to watch: fourth-quarter revenue excluding one-offs and deferred compensation against the roughly $896 million the low end implies. A miss would put the full year below a range the bank held since January.
Deposit Costs Rose Faster Than Loan Yields
First Horizon titled its margin slide "NIM in line with expectations", and it has long said rising rates help it because most of its loans reprice quickly. The Fed raised rates a quarter point during the quarter. The margin still slipped one hundredth of a point, to 3.48%, because the bank paid 0.12 percentage points extra on interest-bearing deposits while its loan yield rose only 0.06 points.
The company blames brokered deposits carried over from the spring "as well as higher client deposit costs in the third quarter". Brokered money, bought through brokers at a premium, averaged $7.2 billion, up $536 million, even though the quarter-end balance fell. So funding cost is drifting up again, as it did through 2025 before the Fed cut.
What to watch: the interest-bearing deposit rate in the fourth quarter, now 2.45%. Another rise of a tenth of a point with no further Fed move would mean the deposit market, not policy, sets First Horizon's funding cost.
Core Commercial Loans Stopped Growing
First Horizon's case for 2026 rested on commercial lending picking up, and through June the business and property loans that make up its core book had grown for three straight quarters. This quarter they did not move: loans to businesses outside the mortgage-warehouse unit slipped $96 million, and property loans added $97 million.
The bank titled the slide "Stable loan balances in core commercial in 3Q26", which is accurate. But stable is not what the plan needs, because the mortgage sale removes about $4.5 billion of lending that commercial loans must replace before net interest income can grow. Average loans fell $206 million from the second quarter, so the first read on that replacement is a decline.
What to watch: period-end commercial loans excluding mortgage lenders at the fourth-quarter results, now $46.1 billion. Growth of $500 million or more would show the bank moving the sale proceeds into the loans it says it wants.
Risks This Quarter Didn't Answer
Three standing concerns got no new numbers in the release or the slides, so they stay open until the quarterly filing arrives, probably in early November.
- Business-loan downgrades: criticised balances rose about $140 million in the first half while problem loans fell; the filing's credit-quality table will show whether that migration continued, and charge-offs on business loans already rose to 0.33% of the book.
- Office property: about $2.6 billion, or 19% of commercial property loans, with 53% of it medical office; no office-specific problem-loan figure was given.
- Lending to finance and insurance firms, 12% of business loans: no update since June; the filing's industry table is the only read.
👓 Other Themes
First Horizon Sells $4.5 Billion of Home Loans
First Horizon agreed in early October to sell about $4.5 billion of "select lower yielding consumer mortgages" and booked a $473 million loss on them now. The sale settles early in the fourth quarter and lowers the loan-to-deposit ratio to 88%. The bank says it adds about $45 million, or 4%, to next year's profit before any proceeds are relent to businesses at higher rates.
Rate Rises Now Help First Horizon More
The Federal Reserve raised rates a quarter point during the quarter after holding them through the first half. With the mortgages gone, 62% of First Horizon's loans reprice with short-term rates, up from 58% in June. The bank now estimates a one-point rate rise would add 4.6% to net interest income over a year, against 1.6% it estimated in January. A one-point cut would cost 4.9%.
💲 Other KPIs
Fell 4.7% from June to $13.84, the first decline in two years, after rising every quarter through the second. The mortgage charge did most of it, and lower bond and hedge values took another $0.37 a share. Book value now sits slightly below a year ago.
Rose $8 million from the second quarter, the second increase in a row, as the bank spent $6 million more on promotions to win new accounts. Costs are still below a year ago, when a $20 million charity donation inflated the base. Staff numbers fell by 47 to 7,375.
Dipped below 15% for the first time in five quarters, from 15.3% in the second. The company attributes the dip to capital held against the pending mortgage sale, which raised average equity for the quarter. The four-quarter average is 14.9%, still short of the 15%-plus the bank set as its medium-term goal.
🔮 Guidance
Cut. The plan now has revenue growing about 3% this year, at the bottom of the range the bank had kept since January. By our math that leaves about $896 million for the fourth quarter, up under 1% from a year ago. This quarter brought $884 million. First Horizon blames weaker bond trading and the timing of rate moves; the prior midpoint had pointed to about $964 million.
Unchanged. Costs should finish the year flat on $2.05 billion. By our math that leaves about $509 million for the fourth quarter, below the $521 million just reported. It would be the lowest quarterly cost base of the year, down more than 5% from last year's fourth quarter. The target excludes bonuses tied to any extra trading revenue.
Unchanged. Write-offs should stay between 0.15% and 0.25% of loans for the year. By our math the first nine months ran about 0.20%, with the latest quarter at 0.22%, the highest of the year. Business loans are the source, so the fourth quarter would need to stay under about 0.35% to keep the year inside the range.
Unchanged. The rate excluding one-offs was 21.0% this quarter, back inside the range after 19.5% in the second quarter, when stock-award items lowered it. The reported rate was 18.4% because the mortgage loss cut taxable profit. The bank says discrete items will keep moving the quarterly figure.
Lowered. First Horizon now aims to hold its main capital ratio between 10.25% and 10.5%, a quarter point below the old target at the low end, and the fourth step down in a year from 11%. The ratio sits at 10.3% after the mortgage charge, so there is little room for buybacks until earnings rebuild it.
❓ Key Questions
Does the low end mean 3% or 4%?
The outlook moved to the "low end" of the range without a number. By our math 3% leaves about $896 million for the fourth quarter and 4% about $930 million, a gap larger than the quarter's bond-trading fees.
How much interest income does the mortgage sale remove?
The $4.5 billion sale settles early in the fourth quarter and the proceeds start in cash. Until the bank relends them, it loses the mortgage yield and earns a cash rate; the slide gives only the 2027 gain after redeployment.
Did criticised business loans keep rising after June?
Classified commercial balances rose about $140 million in the first half while problem loans fell. The release reports only the problem-loan figure; the filing's credit-quality table will show whether the migration continued.
What bond-trading revenue does the fourth-quarter plan assume?
Daily trading revenue was $629,000 against $771,000 a year ago, and the bank cites lower countercyclical revenue for the outlook cut. A stated assumption would show how much of the fourth quarter rests on markets.
When do buybacks restart at the lower capital target?
First Horizon bought back only $4 million of shares and lowered its capital target to 10.25%–10.5%, with the ratio at 10.3%. It has $661 million of authorisation left; the timing decides how much of the mortgage sale's gain reaches per-share profit.