First Horizon (FHN) Q3 2026 Earnings Call Transcript

DATE

Thu, Oct 15, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Tyler Craft
• Chairman, President and Chief Executive Officer - D. Bryan Jordan
• Executive Vice President and Chief Financial Officer - Hope Dmuchowski
• Chief Credit Officer - Thomas Hung

TAKEAWAYS

• Adjusted EPS -- $0.53, increasing 4% year over year despite lower fee income and higher provision expense.
• GAAP Net Loss -- $94 million, representing a $0.20 loss per share primarily reflecting the $473 million pre-tax impact of reclassifying mortgage loans to held for sale.
• Mortgage Portfolio Sale -- $4.5 billion, consisting of lower-yielding loans with a 3.85% weighted average coupon rate to be sold at an approximately 10% discount.
• 2027 EPS Accretion -- 4%, projected from the mortgage sale transaction excluding additional upside from redeploying proceeds into higher-yielding assets.
• Loan-to-Deposit Ratio -- 88%, a projected decrease from 96% following the expected settlement of the mortgage portfolio sale in the fourth quarter.
• Average Client Deposits -- $1.3 billion increase, reflecting momentum in relationship banking and new customer acquisition.
• Adjusted ROTCE -- 14.4%, a decrease from 15.3% in the prior quarter driven by the timing of capital use related to the mortgage loan reclassification.
• Interest-Bearing Deposit Rate -- 2.45%, an increase of 12 basis points from the prior quarter due to higher average brokered deposits and rising customer deposit costs.
• Net Interest Margin -- 3.48%, compressing 1 basis point as higher funding costs offset a 6-basis point increase in average loan yields.
• Commercial Loan Growth -- nearly $2 billion over the last 12 months, supported by steady demand in commercial and industrial and commercial real estate sectors.
• Loans to Mortgage Companies -- $891 million decrease at period end, reflecting seasonal trends and the impact of rising interest rates on warehouse volume.
• NPL Ratio -- 0.81%, remaining flat due to a $49 million reduction in nonaccrual balances driven by strong resolutions.
• Adjusted Provision for Credit Losses -- $20 million, up from $15 million in the prior quarter excluding the mortgage restructuring impact.
• CET1 Ratio -- 10.3%, a slight decrease from the prior quarter reflecting the impacts of the mortgage portfolio transaction.
• Fixed Income Revenue -- $49 million, representing a 7% increase from the second quarter driven by favorable restructuring activity.
• Share Repurchase Capacity -- $660 million, with management intending to resume the program during the fourth quarter.
• Tangible Book Value Per Share -- $13.84, decreasing 5% quarter over year as a result of the mortgage portfolio reclassification.
• Line Utilization -- 44%, remaining essentially unchanged from the second quarter level.
• Net Charge-Offs -- $36 million, bringing the net charge-off ratio to 22 basis points for the quarter.
• Targeted Deposit Beta -- 60%, representing the company's objective for the current interest rate cycle.

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RISKS

• Dmuchowski stated, "we do expect that the environment for deposits will remain competitive," which may pressure funding costs during a rate increase cycle.
• Jordan warned that "rising rates and inflation are likely to slow it down some as we transition into 2020," referencing potential macroeconomic pressure on the lending environment.

SUMMARY

First Horizon Corporation (NYSE:FHN) reported adjusted quarterly results highlighted by a strategic balance sheet restructuring involving the sale of approximately $4.5 billion in lower-yielding mortgage loans. Management reported that the transaction aims to increase capital flexibility and improve profitability by exiting non-relationship assets. The company stated that it will redeploy the resulting liquidity into higher-yielding commercial lending and short-term floating-rate securities. Management indicated that it expects to resume share repurchases in the fourth quarter while targeting a loan-to-deposit ratio of 88% through the current rate cycle.

• Jordan stated, "the intent there was mainly to create capacity on our balance sheet to fund continued growth and investing in longer, deeper relationship opportunities."
• Dmuchowski indicated the mortgage sale will increase immediate asset sensitivity by approximately 100 basis points in a rising rate environment.
• The company reported that 40% of its previously announced $100 million-plus PPNR opportunity has been realized through treasury management deepening and wealth advisor hires.
• Hung noted that commercial real estate starts are down 70% and units under construction are down 50% according to CoStar data, though he stated property values have held up relative to expectations.
• Management stated the mortgage warehouse business utilizes table funds, providing the company with underlying notes at closing to mitigate credit risk relative to other industry structures.

INDUSTRY GLOSSARY

• ACL: Allowance for Credit Losses, a reserve established to cover estimated credit losses over the life of a loan.
• ADR: Average Daily Revenue, typically used to measure the daily performance of trading or fee-based business lines.
• CET1: Common Equity Tier 1 ratio, a key regulatory measure of a bank's core equity capital compared to its total risk-weighted assets.
• LMC: Loans to Mortgage Companies, also known as mortgage warehouse lending, providing short-term funding for mortgage originators.
• NIM: Net Interest Margin, the difference between the interest income generated and the amount of interest paid out to lenders.
• PPNR: Pre-provision Net Revenue, a measure of a bank's earnings before the provision for credit losses and taxes.
• ROTCE: Return on Average Tangible Common Equity, a performance ratio measuring a company's net income against its average tangible common equity.

Full Conference Call Transcript

Operator: Press star 1 I will now hand the conference over to Tyler Craft, Head of Investor Relations. Tyler, please go ahead.

Tyler Craft: Thank you, Erin. Good morning. Welcome to our third quarter 26 results conference call. Thank you for joining us. Today, our Chairman, President and CEO, D. Bryan Jordan and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks after which we will be happy to take your questions. 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 is 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 should understand that we are not obligated to update them. And with that, I will hand it over to Brian.

D. Bryan Jordan: Thank you, Tom. Excuse me. Thank you, Tyler. Good morning, everyone. Thank you for joining us. Our adjusted results this quarter are highlighted by EPS of 53¢, which is a 4% increase year over year. 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. This quarter, we initiated the sale of approximately $4.5 billion of targeted residential mortgage loans as part of our broader of our 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 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 in 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 will turn the call over to Hope to walk through the results in more detail before I provide some closing thoughts. Hope.

Hope Dmuchowski: Thank you, Brian. Good morning, everyone, and thank you for joining us today. Starting on Slide 5. We provide key highlights of our performance this quarter. In the quarter, adjusted EPS declined to $0.53 on lower fee income and slightly higher provision expense in the quarter. Our adjusted ROPCE decreased to 14.4% in the quarter, which 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 to see 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 recognized 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 approximately 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 ROTCE of approximately 150 basis points. Share buybacks will resume in Q4 in line with our CET1 target 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 8, we walk through our net interest income and margin performance in the third quarter. Our margin compressed by 1 basis point remaining settled at the high 3.40s. This reflects the rate 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 3.50s. On Slide 9, we covered details around our deposit performance in the quarter.

Period end balances decreased by $400 million compared to prior quarter. Driven primarily by a decrease in brokered 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 brokered 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 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 billion mortgage portfolio sale. Loans to mortgage companies decreased $891 million in the quarter which steadily decreased in the quarter as rates rose.

C&I, 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 thousand 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 and equipment increased due to internal technology projects and AI investments. investments. Turning to credit on Slide 13. NPLs remained 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 1 basis point to 1.25%. This primarily reflects mix 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 quarter at $13.84 and is down 5% quarter over quarter.

Also reflecting the impact of the mortgage portfolio transaction. Our tangible common equity to total assets ratio remains strong at 7.93%. Now I will wrap up with Slides 15 and 16. We shared some refinements to our 2026 outlook that include the impact of the expected mortgage transaction as well as the revenue impacts from current rate environment. We continue making progress towards the $100 million-plus PPNR opportunity we discussed over the last 18 months and believe our balance sheet restructuring will provide a further catalyst for return growth in 2027. With that, I will give it back to Brian.

D. Bryan Jordan: 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 Horizon story. Erin, with that, we can open it up for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press *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 Jon Glenn Arfstrom with RBC Capital Markets. Your line is open. Please go ahead.

Jon Glenn Arfstrom: Thanks. Good morning, everyone.

D. Bryan Jordan: Morning, Jon.

Hope Dmuchowski: Hey. Good morning.

Jon Glenn Arfstrom: 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 $4.5 billion And anything more left to do? Is this it?

D. Bryan Jordan: Yeah. So the why now is it-- 1, it became clear that we are in a cycle of rising rates. We size the portfolio based on trying to extract out or sell what was essentially nonrelationship portfolio assets. And the intent there was mainly to create capacity on our balance sheet to fund continued growth and 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 tried to. It 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 million-- Excuse me, million dollars of deposit base and a low yielding portfolio. So the timing was it was a low yielding set of assets nonrelationship. We thought we could use the capacity for other and deeper relationships. And then the tangential is it gives us much greater flexibility in terms of how we think about competing in the deposit market 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 we have a signed agreement. So the transaction is essentially done at this point. Yep.

Jon Glenn Arfstrom: Okay. Good. And then maybe for you, Hope. Can you frame the assumptions around the 4 percent 27 EPS accretion? I think you both mentioned some upside, as you redeployed the proceeds But what are you assuming right now in terms of the drivers of that 4% lift?

Hope Dmuchowski: Good morning, Jon. Thank you. The 4% is really the immediate lift, which is a portion of it to pay down wholesale funding and the rest going into our securities rate at a very. You know, floating rate securities as we continue to, as Brian mentioned, redeploy these loans. So that 4% is really as we get the cash in the next week or so, immediately putting that to work between paying down, our wholesale funding and putting it in our securities portfolio in short term floating rate.

Jon Glenn Arfstrom: Okay. Alright. Thank you very much.

D. Bryan Jordan: And, Jon, I will add. While you are dropping off, I will add that you should start to see the benefit, you know, 2-thirds of it or so beginning in the fourth quarter of this year, as Hope said. We get this closed, we will start immediately reinvesting the cash.

Operator: Next question comes from the line of Ryan Nash with Goldman Sachs. Your line is open. Please go ahead.

Ryan Nash: Good morning, Brian. Good morning, Hope. Morning, Brian. Hope, maybe to start, you noted that you expect 60% beta from the rate hike. I think that implies about a 15-basis point or so deposit cost increase. 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 you know, the rate driven increases that we have seen? Do you expect those to persist? Thank you. And I have a follow-up.

Hope Dmuchowski: Thanks, Ryan. Starting with the 60% beta comment, that is through the cycle and so quarter to quarter depending on when you have a rate increase earlier late in the quarter, that is not meant to be a quarter in, quarter out. We also only had 2 weeks of this rate hike baked into this quarter. When we look at the rate competition, I have said this previously, the summer months is the most competitive time for us is when we mentioned now 3 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 will see the $6 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 2 years when we start to lead with rates 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 1 hike? Do we see 2? Is it earlier in the quarter or later? that is why I really focus on the beta part of it.

Because I do think there will be noise quarter to quarter as 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 3% range next quarter and continuing to focus on expanding that with the redeployment of this mortgage sale into higher yielding assets.

D. Bryan Jordan: Ryan, 1 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. On deposits up some over the quarter. And then with this transaction and our ability to repay that, particularly as mortgage warehouse has come down some. That should take some pressure off deposit costs. More macro I have often said in 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 is gonna be some upward move of deposit costs over time.

I know here recently, there is been a lot of focus on AI and tools and other things like that impacting deposit cost. And while that may be a long term adoption trend, it is not something that we expect to have a lot of impact in the very near term that will take a lot of time. And fundamentally, I do believe that customer relationships, customer stickiness is still an important part of the business, and we believe that, 1, our focus on and all that will help us ameliorate some of the upward drift and deposit costs over time. It will not eliminate it, but will help ameliorate some of that.

At the end of the day, we think that we have the ability in this rate. Rising rate environment to be very, very competitive. We think with the adjusted balance sheet with a loan-to-deposit ratio at 88% or so, it gives us more flexibility. So we think we are extraordinarily well positioned to navigate this period of rising rates.

Ryan Nash: Gotcha. Appreciate all that color. And Brian, you know, you have been relatively upbeat on loan growth. Maybe outside of warehouse C and I balances and CRE had a little bit of growth, little bit of shrinkage. Maybe just talk a little bit about the performance. And given the freed up balance sheet capacity, how are you feeling about the ability to lean in a little bit further on loan growth?

D. Bryan Jordan: Yes. I still am upbeat. And if you-- you get, you know, sort of a political environment where the consumer is feeling under some degree of stress and that 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, 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 sheet, you pointed out mortgage warehouse lending came down during the quarter. C and I was flat.

We are still seeing some funding up in commercial real estate deals. We do not you know, 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 So we think our asset-generation capability is still very strong on a relative basis. But I would put all of that against the backdrop We are going to be smart about what the customer base and the economy gives us. We are going to pick our spots and participate in 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 2020.

Ryan Nash: Thanks. Appreciate all the color. Thank you.

Operator: The next question comes from the line of Ebrahim Poonawala with Bank of America. Your line is open. Please go ahead.

Ebrahim Poonawala: Good morning.

Hope Dmuchowski: Morning.

D. Bryan Jordan: How are you doing, Ebrahim?

Ebrahim Poonawala: Just good. Good, Brian. 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 have been very reluctant, Brian, to deploy deposits to low yielding government securities. But as we think about where it is resetting now, how should. Like, is that the new normal and does that also sort of set the stage for you to be able to become $100 billion-plus asset bank with a mid-to high-80s loan-to-deposit ratio feels the right place to be if you.

D. Bryan Jordan: Yeah. Yeah. Thanks for the question.

Hope Dmuchowski: We do. As I mentioned in my prepared remarks, we will put a good portion, you know, into securities immediately, but we do expect to redeploy that into loan growth. The intention is not to grow our securities portfolio. As we think about where loan growth will come from, 1 of the comments Brian and I have made consistently on this call and conference is our ability to grow loans previously was dependent on our ability to grow deposits. Balance both sides of the balance sheet. So this does allow us to have some additional growth on the loan side the deposit side slightly lagging.

Whether it is either quarter to quarter or year-over-year, 88% loan-to-deposit ratio gives 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 gonna 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 as we see that forward curve play out. It positions us with a slightly more asset sensitive balance sheet, which is a positive we think in this rising rate environment.

D. Bryan Jordan: And we are not with any in any measure, reducing our desire to continue to grow the right side of our balance sheet to grow our deposit and broaden and deepen. And we have talked a lot over the course of the last year, year and a half, 2 years about our desire to continue to sell our treasury management products to penetrate operating account relationships to continue to broaden and deepen with our credit customers.

And we think that freeing up the opportunity to take this pool of largely nonrelationship assets and move it off the balance sheet and create capacity to put more generating assets on the balance sheet there is going to be a net positive for that loan-to-deposit ratio over the long term.

Hope Dmuchowski: 1 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.

Ebrahim Poonawala: Got it. So the action obviously from a client relationship, ROTCE, asset sensitivity. Understood. Yep. And maybe given just the change in the rate outlook or what is happened from the further market, Talk to us about the mortgage warehouse business. Obviously, it is been an attractive business for you. But maybe how are you thinking about it today given where rates have headed And talk about 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?

D. Bryan Jordan: Yeah. I will come right back to the mortgage warehouse question. I wanna add 1 other benefit. This repositioning of the balance sheet does not impact our ability to continue to repurchase or return capital repurchase stock or return capital to our shareholders. We have strong capital ratios and we are 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, And 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 a countercyclical businesses that perform in opposite directions The third quarter was unusual. In the sense that we started to see the impact on the counter businesses well advanced. Well in advance of the Fed raising rates. And so we have. We think likely to be a little less seasonality impact in the in the fourth quarter in mortgage warehouse lending. We will see how that plays out with mortgage rates where they are.

At the at the end of the day, the mortgage warehouse lending 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 have deepened share with our customers. We expect that there will be some consolidation in the mortgage space We think we are 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 in for everybody else will be a little bit tougher and a lower volume environment, we think we are well positioned. Tom, I do not know what you would add to that.

Thomas Hung: Yeah. Good morning, Ebrahim. I would add that we have seen some, but not what I would call any outside 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 are well aware of kind of what would happen in that environment again if we were see multiple rate increases. So in terms of sizing their companies appropriately from an infrastructure and fixed cost fixed expenses standpoint. We are working with very experienced operators. And so I would continue to expect that very strong credit performance even in the face of multiple rate increases.

Hope Dmuchowski: What I will add to what Tom and Brian already said is we. This is not an NDFI line. We do table funds. So we have the underlying notes at close. So should something happen to 1 of our clients, we have those notes. We can sell them at so we do not have the same risk that some of the, different mortgage warehouse structures have. We continually talk about we have had 1 basis point 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 1 is that we always point to is this typically stays on our balance sheet 19 days per note.

So just from the time the deal closes, that is time it is, delivered to the other side. So if we were to see something happen in this business, we had concern, we can bring those lines down pretty quickly.

Ebrahim Poonawala: Got it. Thank you for all the answers.

D. Bryan Jordan: Thank you.

Hope Dmuchowski: Thank you.

D. Bryan Jordan: Good to talk to you.

Operator: The next question comes from the line of Michael Edward Rose with Raymond James. Your line is open. Please go ahead.

Michael Edward Rose: Hey. Good morning, everyone. Thanks for taking my questions. Just wanted to talk about the $100 million-plus PPNR opportunity. I think the slide say you are 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 think about it as maybe just accelerating the progress in the path that you are already on? Thanks.

D. Bryan Jordan: 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.

Michael Edward Rose: Okay. Perfect. And then maybe if you can just outline you know, from here, the extra 60% to get to the original amount. What is still left to happen, and how does the rate picture kind of potentially impact the timing? Thanks.

Hope Dmuchowski: Yeah. Some of it is just timing when you annualize it as you deepen with customers. We have talked a lot about our treasury management success with deepening with existing commercial clients. On average, when you deepen our treasury management relation with a client, it can take 3 to 9 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 annual. They So when we say it is 40%, that. that is 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. We keep talking about how we rolled out a new partnership with l b. LPL. We have hired new wealth advisers. We are continuing to see that work as we deepen with some of our commercial business owners and others that already are first rising clients and then we introduce them to the wealth side of it. I would say those are the 2 biggest that we still have the tail on. We have continually talked about loan only low economic profit, low only and not renewing those at renewals. We cannot 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 it is completely in line with how we have been rethinking our portfolio to increase profitability for every single dollar we lend out.

Michael Edward Rose: that is that is very helpful, Hope. And do not wanna get ahead of myself and ask about 2027, but just given the benefits from 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 basically, how should we think about positive operating leverage for next year I know it is early, but just trying to better understand the outlook there. Thanks.

Hope Dmuchowski: We do not expect to have a significant reinvestment like we did 3 years ago coming out of the termination. We believe we have the right run rate of expenses. We continually say we will be inflationary from here on out for expense growth year over year, and we expect positive operating leverage next year.

D. Bryan Jordan: Yeah. We see Mike, Michael, we see 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, etcetera. 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 in certain things like health care and cost in general inflationary type cost. But we think we can maintain a reasonable growth rate 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 is our plan going into 2028 as well.

Michael Edward Rose: Very helpful. Thanks for taking my questions.

Hope Dmuchowski: Yep. Sure. Thank you.

Operator: The next question comes from the line of Bernard Von Gazzicchi with Deutsche Bank. Your line is open. Please go ahead.

Bernard Von Gazzicchi: Hi. 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 the outlook for higher rates impacts that at all?

Thomas Hung: Yeah. Sure. Good morning, Bernard. Happy to answer that 1. The commercial real estate group has had a lot of momentum, but most importantly, we have 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 2 main reasons I will point to you.

1 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 net charge-offs have averaged 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 a higher interest rates. The other thing I would 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 are down 70%. Units under construction are down 50%. So there is 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 so I think the absorption will be there as well.

Bernard Von Gazzicchi: 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 volatility during the quarter. And you did highlight some higher client restructuring activity. I am 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.

Hope Dmuchowski: Yeah. We have continued to see 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 reach restructure their balance sheet. We saw this when rates were decreasing about this time last year. And so I do think depending on how quickly rates increase, if we do, I do not know where the forward curve is this morning, but yesterday, it had 1.5 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.

Bernard Von Gazzicchi: Great. Thanks for taking my questions.

Hope Dmuchowski: Thank you.

Operator: The next question comes from the line of Ryan Kenny with Morgan Stanley. Your line is open. Please go ahead.

Ryan Kenny: Hey, good morning. Thanks for taking my questions. Can you unpack what you are seeing in terms of non interest bearing deposit balances and mix shift. On 1 hand, you could argue customers are already broadly optimized. You are growing operating accounts. You are deepening relationships. But on the other hand, we have some rate hikes in the forward curve. So how do you think about NIB mix? And is there a scenario where NIB balances and IB balances can grow?

Hope Dmuchowski: Yeah. On the first part, we are not seeing mix shift, and we have not 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. They are spending it more quickly, so their average balance their average days at a higher balance is 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 noninterest bearing and interest bearing as you saw this quarter. there is always seasonality in deposits with commercial clients when they pay, their annual taxes or their seasonality around consumer and private client around tax season or bonus season, but we absolutely believe we will continue to grow both of those in the coming quarters and years as we refocus on long, strong relationship business with our clients.

D. Bryan Jordan: Yeah. If I had to take a side on the trade, I would say, customers are much more optimist. Optimized today than they were a year ago or 6 months ago. there is been a lot of-- there is a lot of data out there about rates. there is 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.

Ryan Kenny: And as a follow-up, in terms of your capital priorities, so you used some capital for the mortgage sale. Seems like looking forward, you will use some capital for resuming buybacks and for loan growth. Is it a fair interpretation that this means less of a priority to maybe use capital for a depository acquisition?

D. Bryan Jordan: Well, I think you know, that is 1 of the tangential benefits is I have talked about over the last year, the optionality about doing something small that would create an 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 1, investing in customer growth, and balance sheet activity. 2, be smart with our capital and repatriating it to shareholders opportunistically through repurchasing shares in the market. And we have about a little over $660 million capacity remaining. So we are in a good place to have a lot of optionality around investing with customers and returning capital to shareholders.

Ryan Kenny: Thank you. Very clear.

D. Bryan Jordan: Yep.

Hope Dmuchowski: Thank you.

Operator: The next question comes from the line of Janet Leigh with TD Cowen. Your line is open. Please go ahead.

Janet Leigh: Good morning. Can you help unpack a little bit about the decline in core CNI x 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 C and I outside of those July and August being summer months?

Thomas Hung: 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 C and I as you would expect. There were increases in some sectors and decreases in other. There was not any major driver. In 1 direction or the other.

D. Bryan Jordan: it is speculation slash projection, but I think customers are like all of us. They see headline fuel costs 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 know, where are we in the economy, what is next, and I do not read anything into it of a negative bent at this point. I think it is 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 in their businesses.

Janet Leigh: Right. Thank you. So it seems like you are expecting for commercial lending growth momentum to increase versus the third quarter. On the mortgage sales, so it looks like the 4% accretion seems like a floor since that is 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 C and I CRE? Is mid single digit kind of growth still a right place to be?

D. Bryan Jordan: Well, I. Yes. I think I think, you know, the pro forma form a is invested in securities. And 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. Again, it is dependent upon what the economy gives us and how interest rates and inflation affect things. But we think with our asset generation capability, we can pick up incremental growth in that range.

Janet Leigh: Got it. Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from the line of Jared David Shaw with Barclays. Your line is open. Please go ahead.

Jared David Shaw: Hey. Good morning. Good morning, sir. Thanks. So you know, just going back, I guess, to the bigger strategic view with this sale, should we expect any additional bigger moves to execute on that 5 flag strategy, or is it more of, like, you know, executing on the blocking and tackling like Cove mentioned, around treasury management, wealth management, and things like that?

Hope Dmuchowski: Yeah. I think in terms of big balance sheet, profile changing things, I would not expect anything else at this point. I think the.

D. Bryan Jordan: You used a great phrase, blocking and tackling. The $100 million is a blocking and tackling 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 is 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 wanna broaden and deepen customer relationships and thinking about how we proactively look for opportunities to deliver more valuable advice, counsel, and support for our customers and the same time, deepen our relationship. But it is a blocking and tackling exercise.

Jared David Shaw: Okay. Thanks. And then just a follow-up for me more bookkeeping. When we look at the securities portfolio apart from what you are gonna be putting in from this sale, what is, what is the cash flow been looking like there, and what is your new reinvestment rate versus the roll off on that Yeah.

Hope Dmuchowski: Jared, we have that in our deck. I am just trying to turn the page. I think it is it is approximately $1 billion of securities with a roll off yield of currently 2.9%, and as of today, you know, floating rates in the mid-4.50s. Mid-4s. Sorry. SOFR plus. If we do see rate increases, obviously, that 2.9 gets higher as the reinvestment that, you know, the mid fours moves up 25, 50 basis points, etcetera. So burn fed funds move up in the future quarters.

Jared David Shaw: Great. Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from the line of Anthony Albert Elian with JPMorgan. Your line is open. Please go ahead.

Anthony Albert Elian: Hi, everyone. Can you help unpack what drove the reduction to the revenue outlook You have tailwinds to NII from the bottom of Slide 8, and you noted a few times hope that NIM is expected to increase to the 3.50s in 4Q. But is that not enough to offset the lower countercyclical revenue in 4Q?

Hope Dmuchowski: Yeah. Thank you for the question. I think, we are sitting right at about 4% for the first 9 months of the year. If you look at Q4 of last year's not as much about momentum quarter over quarter, but we had a really strong Q4 last year in our countercyclical. It was a high point for mortgage warehouse balances, which is typically a low point of the year that they had a significant increase in Q4. We also saw really strong ADR in FHN Financial that we do not expect to repeat in Q4 of this year.

Anthony Albert Elian: Thank you. And then on expense, you saw a step up in expense ex deferred comp in 3Q, but you are still pointing to flat for the full year. Expense range. I think that would imply a step down in 4Q. what is driving that and the unchanged expense outlook? I asked because if I look at the past few years, 4Q expense has been up sequentially. Thank you.

Hope Dmuchowski: Yep. 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 noninterest 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 are 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 reduced our go forward run rate for personnel and associated costs with that.

Anthony Albert Elian: Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from the line of Timur Braziler with UBS. Your line is open. Please go ahead.

Timur Braziler: Hi. Good morning. More on the restructuring 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?

Hope Dmuchowski: We do not have that exact number yet. I think it is really we are looking through all the scenarios. As we mentioned in our prepared remarks, we just closed, on this transaction last week. We expect to close this month. So we are still in the early phases of putting that all back to work. I do think it is 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.

Timur Braziler: Got it. And then maybe bigger picture, I guess, 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?

D. Bryan Jordan: I think in broad terms, it increases our optionality. It creates a more profitable customer centric balance sheet. It remains. We remain as flexible in terms of our capital repatriation. And while I have said many, many times over the last couple of years, we are gonna continue to operate the business with a long term vision of creating value for our customers, our communities, our shareholders, and our associates. We are not changing or reducing in our view any optionality we have for the future.

Hope Dmuchowski: I just need to clean up my words for. 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 is go. Little note from our legal team. Just wanna clean up my language there.

D. Bryan Jordan: We signed a we signed a sale agreement. We will close it. Correct. Wanna make sure it is appropriately recognized in the transcript. Yep.

Timur Braziler: Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from the line of David Chiaverini with Jefferies. Your line is open. Please go ahead.

Brooks Sutton: Hey, guys. Good morning. This is Brooks Sutton on for David Chiaverini.

D. Bryan Jordan: Guys mentioned that.

Hope Dmuchowski: Good morning.

Brooks Sutton: You mentioned that the sale adds about a 100 basis points of near term asset sensitivity in the proceeds go into floating rate securities. You guys still have some received fixed swaps maturing in 2027. Then in the 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.

Hope Dmuchowski: Great question, Brooks. And I will say we are always evaluating what are, but, you know, bringing down the duration of the portfolio was a positive to this. Transaction, but we are not. As Brian mentioned earlier, we are not in the near term looking at any other transactions at this time, but we are always reevaluating our balance sheet based on changing rates environments, whether it is increasing, decreasing flat. So, that is part of our regular cadence to look at our asset sensitivity and make sure that we are hedged correctly on both sides of the balance sheet.

D. Bryan Jordan: And I know this is somewhat repetitive, but as I mentioned earlier, we do think about the countercyclical businesses and terms of our aggregate sensitivity business. So we are 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 through. In our view through an earning cycle. So we will make those decisions as we get closer.

Brooks Sutton: Great. Thank you for the question.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from the line of Casey Haire with Autonomous Research. Your line is open. Please go ahead.

Casey Haire: Great. Thanks. Good morning, guys. Just 1 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. You know, the with the stronger liquidity profile, you are more willing to let loan growth pick up and deposit growth kinda lag So that would give you the opportunity in theory to do better than that 60% deposit beta. Just wondering why that is still the target and if. Whether or not that is conservative. Thanks.

Hope Dmuchowski: 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. We actually topped out closer to 70%, so it is slightly down from that. I think it is an early guess Casey. The question is how much. You know, as we have talked about every call, it is a competitive environment to 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.

Casey Haire: Great. Thank you.

Hope Dmuchowski: Thank you.

Operator: Next question comes from the line of Peter Winter with Hovde Group. Your line is open. Please go ahead.

Peter Winter: 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 are going to continue to you are going to resume the stock buyback. You were buying back, you know, very rapidly up really through the first quarter, a little bit less in the second quarter, and then stopped in the third quarter. Now you are down to 10.3% on CET1. I guess 2 questions. First is, the moment this transaction closes, next week or whenever that is, to what extent would. Does that enhance the 10.3% CET1? Do you step up when these things go off into.

And then, you know, to what extent is that? And then, Brian or could you could you give us any sense of how rapidly or what kind of focus you have on buying back stock in the near term. And is there a low threshold whether it is 10.25% or whatever it is that you do not want to drop below on CET1? Thank you.

D. Bryan Jordan: Yep. So it is been a long time, Peter. Good to talk to you. The Yep. Brian, it is been a long time. it is good to talk to you again. Yeah. But buyback is 1 of those things that we are opportunistic about, 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 are we are very comfortable in that 10.25% to 10.5% range post this transaction. We expect continue to generate a fair amount of capital, which will support growth.

We expect that we have the ability to continue to repatriate capital to shareholders So with. there is there is not a hard floor there is 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 capital. Excuse me, this buyback in our capital base to repatriate some capital in the fourth quarter and going into the first.

I we have been opportunistic over the course of the last couple of years, we have repurchased a significant amount of stock and clearly, it is. In our view, on sale at prices like we see in the market over the last week or 2 as the industry has come down. We will continue to use that as an opportunity to buy. Thanks.

Peter Winter: Hope, is there any kind of a projection or levels we should think about where CET1 would be you know, the moment. The day that this that these loans actually leave the balance sheet.

Hope Dmuchowski: No. it is it is not a material, impact that we have already marked on that is how we use capital to this quarter. I talked about in my opening remarks that average TCE was much higher than period end TCEs. We marked these all quarter end when we entered into a agreement to sell these. And so that has already happened What we did have to do is stop all share buybacks. When you are in a discussion of something like this, regardless of what your capital target is, you cannot be in share buybacks. We do not do it at ASR.

We stay active in the market throughout the quarter so that we have leverage to say we, you mentioned the prior quarter, we had really significant loan growth in prior quarter. Which we put that capital to Houston and then use the delta to figure out how we get within our CET 1 target. We do not set a dollar amount at the end of each. At the beginning of each quarter or with our board for 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.

Peter Winter: Okay. Okay. Great. that is very helpful. Thank you.

D. Bryan Jordan: Alright.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from the line of Christopher William Marinac. With Brean Capital. Your line is open. Please go ahead.

Christopher William Marinac: Thanks. Good morning. I wanted to ask a question to Tom about C and I losses, and I know we have got the broader guide for losses for the year, but just curious at the C and I level that we seen this quarter or last quarter, is that still a good number in the near term? Or would you expect that to change? Either side?

Thomas Hung: Yeah. Good morning. C and I net charge offs have been fairly consistent. Obviously, quarter to quarter, there is some ups and downs. But it is remained relatively consistent. I do not have any reason to believe it would materially deviate. 1 way or the other in the upcoming quarters. Probably not surprising where it is coming from is generally things that are more closely tied to discretionary consumer spending in the current environment. So discretionary consumer, retail trade, some manufacturing that. that is essentially kind of where we have been seeing it.

D. Bryan Jordan: it is largely. This is Brian. Christopher, this is. it is largely idiosyncratic. there is no huge patterns developing.

Christopher William Marinac: Okay. Great. Thank you both for that. And then just a related question. The balances we have seen on the unfunded C&I, we could still interpret that as a kind of net growth of customers, both new and existing on the platform.

Thomas Hung: Yeah.

D. Bryan Jordan: Yeah in terms of on. Putting unfunded commitment onto the balance sheet is net growth and customer broadening and deepening Yeah. The customer relationships and new customers. Yeah. that is right.

Christopher William Marinac: Very well. Thanks for taking all of our questions this morning.

Hope Dmuchowski: No. Thank you.

Operator: Your next question comes from the line of Ben Gurlinger with Citi. Your line is open. Please go ahead.

Ben Gurlinger: Hi. Good morning. Actually wanna follow-up a little bit on Casey's question about deposit betas. Like, is not the ones that here give you liquidity or reduces your loan-to-deposit ratio? Like, is not that kind of the positive here is that your overall beta should not be as pressured to kind of, in theory, hot money as type clients looking for more yield. Is it potentially, like, you might have continued loan or deposit balance growth? I am just kinda curious on why the beta would not be like, a step lower over this next hike cycle.

D. Bryan Jordan: Well, hope we can give you a mechanical answer that I will give you my 40 thousand foot view, and it is. We are we are forecasting out a cycle, and the competitive landscape and what happens is a little bit unknown to us like it is to everybody else. And so we are placing a forecast out there that is in line with what we have seen in past cycles. Are going to optimize our deposit pricing capability as best we can. But it is important, as I have said in the past, to note, we are not playing solitaire in the marketplace and that we are going out there competing to broaden and deepen customer relationships.

We are looking to acquire new customers. And so we think in a context, plus or minus 60% that we can operate in that area. And that is our outlook. I would not try to read too much into or fly spec whether that is 58% or 62% at this point because there are too many unknown in the operating environment. But we are at a at every single day looking for how we strike that balance with providing real value to customers and prospective customers do it in a way that drives profitability.

Hope Dmuchowski: What I would add to that, Ben, is you asked the question about hot money. We do not chase hot money. We do not have a large CD portfolio. We do not 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 are going to call their banker here and says, hey, I have seen this or I have 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, and so a lot of our clients was asked a lot of credit questions. Their cost of funding is going go up each rate hike. To the extent that they have interest bearing deposits with us, they are gonna try to offset that as an earning asset. And so do not think about it as chasing hot money and weak 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 are in, not just reward a new with topical out market. that is how we retain those relationships.

Ben Gurlinger: Got it. Thank you.

Hope Dmuchowski: Oh, thank you.

Operator: Your next question comes from the line of Chris McGratty with KBW. Your line is open. Please go ahead.

Chris McGratty: Oh, great. Thanks for squeezing me in. Brian, have you ever given the capital you have the capital to do this trade? I am interested in the discussion about earn max with this. Obviously, there is a 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.

Hope Dmuchowski: 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 do not 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 am not sure what assumptions you were using, Christopher, in your question there, but I do wanna reiterate what we put in the deck is the immediate impact in the current rate scenario.

D. Bryan Jordan: 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. It call it, half of the proceeds. The earn back comes in very favorable vis a vis a stock buyback.

Chris McGratty: Got it. Thank you.

Hope Dmuchowski: I put that in line with my earlier comments you know, we talked about securities being so far plus 50 currently. And we talk about our loan deployment being in the SOFR 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 1. So what we try to do is tell you what the immediate impact is and then it is upside from there as to how quickly we redeploy it at 100, 150 or 200 basis points higher than what it will be in securities day 1.

Chris McGratty: Great. Thanks, love.

Hope Dmuchowski: Thank you.

Operator: The last question comes from the line of John Pancari with Evercore. Your line is open. Please go ahead.

Russ Anderson: Good morning. This is Russ Anderson on for John Pancari. Thanks for taking my question. Just on, you know, Tom, you touched on the credit performance and of CRE and the multifamily supply picture. Could you just talk a little bit more about what you are seeing in updated property valuations and refinancing? You know, borrowers have to bring more equity to the table or cash flows supporting renewals on existing terms? Thank you.

Thomas Hung: Yeah. We actually continue to see a very robust market for refinancing our CRE development deals. Some of this is commercial banks, some of it is credit. there is a lot of deals going to that market. that is what contributed to actually [Inaudible] We have [Inaudible] [Inaudible] [Inaudible] [Inaudible] [Inaudible] [Inaudible]

D. Bryan Jordan: Could you guys hear us on that last answer? I have got some feedback that we maybe have some audio issues in that last answer.

Russ Anderson: That was a little choppy, but. Still live on the line.

D. Bryan Jordan: Now we have gone over. Okay.

Hope Dmuchowski: Tom, you wanna. Tom, do you want to repeat that? That would be great.

Thomas Hung: Yeah. Yeah. I am happy to repeat that. What I was saying is, overall, the refinance market has actually remained pretty solid. We have 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 is 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 have seen updated appraisals 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%.

And considering we have been very consistent in always underwriting to about 40% equity coming in the deals and, so 60% LTC. That has. We have been 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 is a big contributor that this discipline we have kept and not chasing the market. that is why even in peak interest rates, we have continued to perform very well in our CRE portfolio.

Russ Anderson: Great. that is it for me. Thanks for taking my question.

Hope Dmuchowski: Thank you.

Operator: 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.

D. Bryan Jordan: Thank you, Erin. Thank you all for joining us this morning. I appreciate your interest in patience as we try to work through some of the complexity of this quarter. We think we are very, very well positioned for the fourth quarter and then 2027. Please reach out if there is anything at all we can do to give you additional information. Hope everyone has a wonderful day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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