First Horizon Swings to a $94 Million Loss as It Agrees to Sell $4.5 Billion of Mortgages

First Horizon took a deliberate third-quarter loss to exit lower-yielding mortgages, agreeing to sell about $4.5 billion of them in a transaction expected to settle early in the fourth quarter.

First Horizon Corporation (NYSE: FHN) reported third-quarter 2026 results on Thursday, October 15, 2026, posting a net loss available to common shareholders of $94 million, or $0.20 a share. The loss was the price of a balance-sheet move the bank chose: during the quarter it began evaluating a sale of about $4.5 billion of select lower-yielding consumer mortgages and, in early October, entered into an agreement to sell them. The sale is agreed and pending, not closed — the sale is expected to settle early in the fourth quarter — and the company says it will be accretive to earnings on a go-forward basis while freeing balance-sheet capacity for future loan growth.

Excluding notable items, adjusted earnings per share was $0.53, down $0.01 from the second quarter of 2026 and up $0.02 from the third quarter of 2025. Chairman, President and Chief Executive Bryan Jordan pointed to deposit growth as the quarter's underlying story: average client deposit balances rose $1.3 billion in the quarter, and he said the bank is focused on deploying capital where it best serves long-term value creation.

The charge that turned a profit into a loss

Reported results carry notable items of $0.73 a share, or $347 million after tax, primarily the reclassification of the targeted mortgages to held for sale ahead of the pending sale. The centerpiece is a $473 million pre-tax loss on the pending sale, recognized in noninterest income, partly offset by a $45 million provision reversal tied to the same classification change. That single line drove total noninterest income to a loss of $276 million, against income of $211 million in the second quarter, and pulled reported revenue down to $407 million. On the company's adjusted basis, revenue was $883 million. Net interest income was $683 million, up $7 million from the second quarter, with a net interest margin of 3.48%. Excluding the charge, the underlying quarter was close to flat — which is precisely the bank's argument: the loss is accounting for a decision, not a deterioration in the business.

Against expectations, the adjusted result was a small beat on earnings and a small miss on revenue. A widely cited earnings summary put adjusted earnings per share of $0.53 one cent ahead of the consensus estimate, while adjusted revenue of $883 million came in about $7 million light. That texture matters less than usual this quarter, because the reported numbers are dominated by a transaction whose payoff is projected, not yet realized.

A smaller loan book, by design

The balance sheet already shows the reclassification. Period-end loans were $59.8 billion at September 30, down $5.5 billion from the second quarter, and loans held for sale jumped to about $4.37 billion as the targeted mortgages moved categories; consumer real estate balances fell $4.6 billion on the same shift. Total assets were $84.3 billion at September 30. Average deposits were $68.6 billion, up $1.8 billion in the quarter, while period-end deposits of $67.7 billion eased $372 million, driven primarily by lower brokered certificates of deposit. The common equity tier 1 capital ratio was 10.3%, down from 10.5% in the second quarter, a decline the company attributes to the notable items and the held-for-sale reclassification.

The company's own earnings presentation quantifies the expected payoff, and labels it as an estimate measured against the consensus forecast as of October 2, 2026: its earnings presentation projects the sale will lift 2027 earnings by about 4%, or about $45 million after tax, with a return on average tangible common equity improvement of about 150 basis points, a loan-to-deposit ratio improvement of about 700 basis points to roughly 88%, and a further benefit still to come, because those estimates are before any benefit from partially redeploying proceeds into higher-yielding loans in coming quarters. That is the trade in one line: take the loss now, own a cleaner balance sheet later.

Investors, on the first read, took the bank's side of that trade. Reuters reported the shares jumped about 4% in morning trading on Thursday, though they remained down about 5% for the year as of the prior close. Reuters also captured the two questions analysts are now circling: an analyst at one firm called the actions a cleanup of the balance sheet's optics that likely produces a more profitable franchise, while another expects the debate to center on how quickly proceeds are redeployed into higher-yielding commercial loans and whether deposit cost pressure eases enough to support net interest income.

What to watch next

Four things decide whether this quarter reads, in hindsight, as a clean reset or an expensive detour: whether the mortgage sale settles on the expected early-fourth-quarter timetable; whether the bank redeploys the proceeds into higher-yielding loans at the pace its 2027 accretion math assumes; whether deposit costs, which rose in the quarter on higher brokered and customer deposit costs, stop pressuring net interest income; and whether further balance-sheet actions follow, since the company paired the sale with a broader realignment of its mortgage business and says the freed capacity supports share repurchases. Two facts remain undisclosed in the materials the company published with its results: the identity of the buyer, and an exact settlement date beyond the early-fourth-quarter window.