First Horizon Posts Loss After Mortgage Sale Reclass
The Memphis regional booked a $473 million loss on about $4.5 billion of consumer mortgages moved to held-for-sale, producing a $0.20-a-share loss.
First Horizon Corporation (FHN), a Memphis-based regional bank with $84.3 billion in assets, reported a third-quarter net loss available to common shareholders of $94 million, or $0.20 a share, after it began evaluating a sale of about $4.5 billion of lower-yielding consumer mortgages and, in early October, agreed to sell them.
The transaction is expected to settle early in the fourth quarter and will be accretive to earnings going forward. It produced a $473 million loss on the reclassification of those loans to held-for-sale. Notable items totaled $0.73 a share, or $347 million after tax. Excluding those items, adjusted earnings were $0.53 a share, down $0.01 from the second quarter.
Period-end loans and leases fell $5.5 billion to $59.8 billion. Consumer real estate declined $4.6 billion on the mortgage reclassification, and loans to mortgage companies fell $891 million. Average loan and lease balances were $64.5 billion, down $206 million from the prior quarter after a $1.5 billion increase in the second quarter.
Net interest income on a fully taxable equivalent basis increased $7 million to $686 million. Average loan yield rose 6 basis points to 5.73%. Net interest margin compressed 1 basis point to 3.48% as interest-bearing deposit costs rose 12 basis points to 2.45% because of higher average brokered deposits and higher customer deposit costs.
Average deposits rose $1.8 billion to $68.6 billion. Average client deposit balances increased $1.3 billion, and average brokered deposits were up $500 million. Period-end deposits of $67.7 billion decreased $372 million, driven primarily by a decrease in brokered CDs.
Adjusted noninterest income fell $14 million to $197 million on lower deferred compensation, partly offset by higher fixed income, service charges, brokerage, trust and insurance, and card and digital banking fees. Reported noninterest income was a $276 million loss after the mortgage-sale mark. Adjusted noninterest expense was $521 million. The adjusted efficiency ratio improved 20 basis points to 58.9%.
The reported provision was a $25 million benefit versus $15 million of expense in the second quarter. Excluding the pending mortgage transaction, provision expense was $20 million, up from $15 million. Net charge-offs were $36 million, or 22 basis points, versus $33 million, or 20 basis points. Nonperforming loans of $482 million decreased $49 million. The allowance for loan and lease losses to loans ratio decreased 1 basis point to 1.08%. The allowance for credit losses to loans ratio increased 1 basis point to 1.25% due to the mortgage reclassification.
The common equity tier 1 ratio declined 12 basis points to 10.3% from 10.5%, a steeper drop than the 1 basis point move in the prior quarter. The decline was driven by notable items and primarily reflects the reclassification of certain mortgage loans to held for sale. Risk-weighted assets fell $0.7 billion to $73.9 billion.
Chairman, President and CEO Bryan Jordan said average client deposit balances increased $1.3 billion in the quarter and that the company continues to focus on growing full client relationships and deploying capital where it best serves long-term value creation.
The sale is expected to settle early in the fourth quarter. First Horizon said the transaction will provide balance-sheet flexibility to support future loan growth.