First Horizon (FHN) Q3 2026 earnings call transcript

Thank you, Erica. Good morning. Welcome to our third quarter, 2026 results conference call. Thank you for joining us. Today, our Chairman, President and CEO, Brian Jordan, and Chief Financial Officer, Hope D'Unchalki, will provide prepared remarks after which we'll be happy to take your questions. We're 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 Riven. 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-GAT measures. Therefore, it's important for you to review the GAP information in our earnings release, pages 2 and 31 of our presentation, and the non-GAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views and you should understand that we are not obligated to update them. And with that, I'll hand it over to Brian.

Thank you, Tyler. Good morning, everyone. Thank you for joining us. Our adjusted results this quarter are highlighted by EPS of 53 cents, which is a 4% increase year over year. Over the last year, we've grown our commercial loan portfolio nearly $2 billion in line with our 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 realignment of the 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 ratio to roughly 88 percent while maintaining strong capital ratios in line with our stated targets and allowing us to maintain our current shared repurchase program. The financial impact will produce an approximately 4 percent EPS accretion in 2027 without considering the upside impact of deploying proceeds and 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'll turn the call over to hope to walk through the results in more detail before I provide some closing thoughts.

Thank you, Brian. Good morning everyone and thank you for joining us today. Starting on slide five, we provide key highlights of our performance this quarter. In the quarter, adjusted EPS declined to 53 cents on lower fee income and slightly higher provision expense in the quarter. Our adjusted ROPC decreased to 14.4 percent in the quarter. This 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. We continue seeing momentum with our strategic focus on relationship banking with client deposits of more than one billion this quarter and NIMM remaining in line with our expectations at 3.48 percent.

On slide six, we cover notable items in the quarter which includes the impacts of reclassifying the loans associated with our mortgage portfolio sale which I will discuss more in just a moment. Additionally, we recognize 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 seven, 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 percent.

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 approximate 10 percent discount all in. Excluding further upside of yields from incremental lending, we expect the transaction to be a creative going forward with 2027 earnings per share benefit of around 4 percent and improved robsey of approximately 150 basis points. Shared 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 percent. It provides immediate improvement to NIMM 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 eight, we walk through our net interest income and margin performance in the third quarter. Our margin compressed by one basis point remaining settled in the high 340s. This reflects the rate of environment involving into a flat two-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 NIMM to improve into the 350s. On slide nine, we covered details around our deposit performance in the quarter.

Period end balances decreased by . 4 billion compared to prior quarter. Driven primarily by decreasing broker 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 broker 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 relationship growth as a way of 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 decrease 891 million in the quarter which steadily decreased in the quarters 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 remains 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 629,000. 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 equipment increased due to internal technology projects and AI investments.

Turning to credit on slide 13. NPLs remain flat at 81 basis points on a 49 million reduction in non-acrual balances driven by strong resolutions during the quarter. Net charge offs increased by 3 million to 36 million bring 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 mixed 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'll wrap up with slide 15 and 16. We shared some refinements to our 2026 outlook that include the impacts of the expected mortgage transaction as well as the revenue impacts in the current rate environment. We continue making progress towards the 100 million plus PNR opportunity discussed over the last 18 months and believe our balance sheet restructuring will provide further catalysts for return growth in 2027. And with that, I'll give it back to Brian.

Thank you, Hope. The results in the third quarter position first horizon for continued success, many full 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. Erica, with that, we can open it up for questions.

Good morning, John. Good morning.

Yeah, so the one now is it one became clear that we're in a cycle of rising interest rates. We sized the portfolio based on trying to extract out or sell what was essentially non-relationship portfolio ads. 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 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 basically extract a portfolio that was very minimal relationship outside of loan transaction. And as Hope pointed out, when you do that, you come up with about four and a half billion dollars of loans, about 200 or so billion dollar, excuse me, million dollars of deposit base in a low yielding portfolio.

So the timing was it was a low yielding set of assets, non-relationship. We thought we could use the capacity for other and deeper relationships. And then the tangential benefit is it gives us much greater flexibility in terms of how we think about competing in the deposit markets and the use of wholesale deposits on a go-forward basis. So we think it has very positive ability 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.

Good morning, John. Thank you. The 4% is really the immediate lift, which is a portion of it going 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 this into a loan. So that 4% is really as we get the cash in in the next week or so, immediately putting that toward between paying down our wholesale funding and putting it in our securities portfolio in short-term loading rate.

And John, I'll add while you're dropping off, I'll add that you should start to see if we get this close. We'll start.

Morning, Ryan.

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 and quarter out. We also only had two weeks of this rate hike baked into this quarter. When we look at the rate competition, I've said this previously, the summer months is the most competitive time for us. It's one, you know, we mentioned now three years running that we bring new customer deposits, specifically in private client, retail, some of our commercial clients in at a promo rate. You'll see the six 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 two 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 one hike? Do we see two? Is it earlier in the quarter or later? That's why I really focus on the beta part of it, because I do think there'll be noise quarter to quarter if 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 350s next quarter and continuing to focus on expanding that with the redeployment of this mortgage sale on the higher yielding assets.

Ryan, one follow on thought is in the third quarter, we did have a higher average balance of wholesale deposit. And they did pull the aggregate right with this transaction. And that should take that. And Long said that over time, technology with the internet and some mobile technology provides a lot more clarity. And upward, there's going to be some upward move. I know here, simply, there's been a lot of focus on agentic AI tools like news and other things like that impacting deposit costs. And while that may be a long term adoption trend, it's not something that we expect to have out of impact in the very near term that that will take. And fundamentally, I do believe that customer relationships, stickinesses that want our focus on relationships and all that will help us ameliorate some of the upward and deposit costs.

I mean, we'll not eliminate it, but we'll help ameliorate some of that. But at the end of the day, we think that we have the ability in this rising rate environment percent or so, it gives us more flexibility. So we think we're extraordinarily well positioned to navigate this.

Yes. I still am upbeat. And if you get 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, then speaking, demand in the economy is still pretty good. GDP growth, GDP now, Atlanta Fed, I think is still around for 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 sheets, you pointed out more which warehouse lending came down during the quarter. CNI was relatively flat. We need some funding up in commercial real estate deals. We don't, you know, we follow the market in terms of prognosticating about what the future of rates will do, but it will have some impact on the economy to create additional lending simply because more pencil out.

But at the end of the day, we feel good about our incineration capability. We have a unique set of businesses that are in many ways, are national and in our specialty lines of business, whether it be mortgage warehouse lending, where we can continue to, we think, when additional market shares in business are in transportation. So we think asset generation capable of that against about, we're going to be smart about what the economy gives us, we're going to participate. And we think that this economy, while inflation, thanks guys.

Morning.

Thanks for the question. We did, as I mentioned in my prepared remarks, we will put a good portion 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, one of the comments Brian and I have made consistently on this call in conferences, is our ability to grow loans previously with dependent on our ability to grow deposits, balance, bulk size to the balance sheet. This does allow us to have some additional growth on the loan side with the deposit side slightly lagging, whether it's either quarter to quarter or a year or a year. 88% loan to deposit ratio gives a little bit more ability to loosen up those rates for the right side of the balance.

As we think about where we redeploy this, we are, as I mentioned in my prepared comments, we are going to 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 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. We are not in any measure reducing desire to continue to grow the right side of the de-grow on the deepen. We talked a lot, continued to management products, to penetrate a relationship and continue to broaden the deepen with our credit customers. We think that freeing up the opportunity to take this pool of largely non-relationship assets and move it off the balance sheet and create capacity to put more relationship generating assets on the balance sheet is going to be a net positive to deposit ratio.

One 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 rising rate environment.

Yeah, I'll come right back to the mortgage warehouse question. I want to add one other benefit. And this reposition of the balance sheet does not impact our ability to continue to repurchase a return cap. We purchased stock and we're comfortable in this 10 and a quarter, 10 and a half, we tend to resume. With respect to lending or mortgage warehouse lending, the third quarter was unique in some ways. We talk about our countercyclical businesses and how through cycle, we tend to be less asset sensitive than stated in terms of the disclosures, because we have these countercyclical performance officers. The third quarter was unusual in the sense that we started the impact on the countercyclical businesses well in advance.

We think it's likely to be a little less seat. 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 this year. So that is a very unusual dynamic. We think that we have built air in that business to serve that and we will continue to. We are positioned with strong participants. And while Tom, I don't know what you would add to that.

Yeah, good morning, maybe I would add any outside of rapid rate increase cycle only a handful of years ago. And so they're well aware of what would happen in that environment again if we were to see Molto in terms of sizing their companies appropriately from infrastructure and fixed cost, fixed expenses standpoint. We're working with very experienced operators. And so I would continue to expect that very strong credit performance in the face of multiple rate increases.

What I'll add to what Tom and Brian already said is this is not an NDFI line. We do table fund. So we have the underlying notes at close. So should something happen to one of our clients, we have those notes. We can sell them. And so we don't have the same risk that some of the different mortgage warehouse structures have. We continually talk about we've had one 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 one is that we always point to is this typically stays on our balance sheet, 19 days per note. It's just from the time the deal closes, the 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.

Think about the 45 million to use your word in addition or incremental to the 100 million dollars Okay, perfect.

A bit is just timing when you analyze it as you deepen with customers. We've talked a lot about our treasury management success with deepening with existing commercial clients. On average, when you deepen a treasury management relation with a client, it can take three to nine 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 annualization. So when we say it's 40%, that's 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. You know, we keep talking about how we've rolled out a new partnership with LPL.

We've hired new wealth advisors. We're continuing to see that work as we deepen with some of our commercial business owners and others that already are a first-driving client, and then we introduce them to the wealth side of it. I would say those are the two biggest that we still have the tail on. We've continually talked about loan-only relationships, low economic profit, low-only, and not renewing those at renewal. We can't 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 is additive to the number, but is completely in line with how we've been rethinking at our portfolio to increase profitability for every single dollar we lend out.

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

Yeah, we see a number of opportunities to continue to invest. So, once the day would include refreshing banking centers, building new banking, continuing to hire, to invest in. And we feel good about control our expenses. We think we have enough lovers in that. We will feel some of the impacts of inflation and certain things like health care, the costs and inflationary type costs. But we think we can maintain a reasonable growth rate, 27, and land going into 2028 as well.

Yeah, sure. Good morning, buddy. I'm happy to answer that one. The commercial real estate group has had a lot of momentum. But most importantly, we've 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 that two main reasons are point two. One is, if you look at our strong lost history, if you go back to the start of 2023, when we were seeing our peak interest rates, since then our pre-net charges 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 our higher interest rates. The other thing I'd point to is, you know, especially on the multi-family side, I think the real root cause has been supply and absorption rate on the supply side. Coastal shows since the peak in 2022, starts at down 70%, units under construction at down 50%.

So there's 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. And so I think the absorption will be there as well.

We have continued to see, you know, 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 restructure their balance sheet. We saw this when rates were decreasing about this time last year. And I do think depending on how quickly rates increase, if we do, I don't know where the forward term is this morning, but yesterday it had one and a half increases in the back half 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 clients appetite to try to hedge that in advance.

We're not seeing mix shift and we haven't seen it for well over a year now. Customers that 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 the inflation has them have less money and they're operating and checking accounts. They're spending it more quickly, so their average balance, their average days at a high. We absolutely believe that we have a franchise. We have a product set and bankers that can continue to grow deposits both the non-interest bearing as you saw this quarter. There's always seasonality in deposits with commercial clients when they pay their annual taxes or their seasonality around consumer, 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 strong relationship business with our clients.

If I had to take a sign on the trade, I'd say customers are much more optimized today than they were a year. There's a lot of data out there about rates. There's very good transparency in the marketplace and as Hope said, most of the mixed shift was spending patterns.

Well, I think that's one of the tangential benefits is I've talked about over the optionality of doing, I think that makes that significantly less of a power view and in many ways deals with one investing in customer growth, customer activity to be smart with our capital and repatriating it to share his page of opportunistic, a little over $600 million of a good place to have a lot of option now and returning capital.

No, not particularly. The long-term mortgage companies is really seasonally driven as well as other course CNI as you would expect are there were increases and decreases and other there wasn't any major driver in one direction or the other? It's speculation slash projection, but I think customers are like all of us. I see headline fuel costs inflation go up significantly during the course of the summer. Diesel fuel supplies, a lot of competitive dynamics. I think people are just being thoughtful of where are we in the economy? What's next? I don't read anything into it of a negative bent at this point. I think it's just ordinary, core increase, the pull of lines that are outstanding in the quarter growing there.

Well, yes, I think the pro-forma is invested in securities. My working assumption is that over the next two to three years we can deploy half of the four and a half billion to call it a little over two-bit loan growth activity over the next two to three.

Again, it's dependent upon what the economy gives us and how interest rates and inflation impact things, but we think with our asset generation capability.

Yeah, I think in terms of big balance sheet, I'll change things. I wouldn't expect anything else at this point. I think you used a great phrase blocking and tackling. The $100 million is a blocking and tackling an great job having some of the actions, 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 for my comments, that we want to 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 at the same time deepen our relationship. But it is a blocking and tackling exercise.

Yeah, Jared, we have that in our deck. I'm just trying to turn to the page. I think it's approximately one billion of securities with a roll-off yield of currently 2.9%. And as of today, you know, floating rates in the mid-450s, mid-450s, sorry, so far plus. If we do see rate increases, obviously that 2.9 gets higher as the reinvestment that, mid-4s moves up 25, 50 basis points, et cetera, so far and fed funds move off future quarters.

Yeah, thank you for the question. I think we're sitting right at about 4% for the first nine months of the year. If you look at Q4 last year, it's not as much about momentum quarter over quarter, but we had a really strong Q4 last year in our countercyclical calls. 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 and FHN financial that we do not expect to repeat in Q4 this year.

Two things in that is the timing of our, was a high point. If you look at non-interest 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're starting to see the expense realization come in. And the third part of that is we talked about we had a restructuring of our mortgage business as well as some other smaller restructurings in the quarter that reduce our go forward run rate for personnel and associate costs with that.

The exact number yet, I think we're looking through all the scenarios. As we mentioned our prepare remarks, we just closed on this transaction last week and we expect to close this month. So we're still in the early phases of putting that all back to work. I do think it's 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.

I think in broad terms, it increases our option. Oftenable customer is flexible in terms of our capital repatriation. And while I've said many, many times over the last couple, we're going to continue to operate the business with a long-term vision, creating value for and our associates. We're not changing or reducing in our view any optionality we have. I just need to clean up my words per my legal advisement here. We finalized last week and we settled this month. Apparently, I got my legal terms backwards on the transaction. There's a little note from our legal teams. I just want to clean up my language there. We signed a sale agreement. We'll close it. Correct. I want to make sure it's appropriately recognized in the transcript.

Yep.

I'll say we're all evaluating what are off, you know, bringing down the duration of the portfolio was a positive to this transaction. But we are not, as Brian mentioned earlier, we're not in the near-term looking at any other transactions at this time. But we're always re-evaluating our balance sheet based on changing rates environments, whether it's increasing, decreasing flats. So that is part of our regular cadence to look at our asset sensitivity and make sure that we're hedged correctly on both sides of the balance.

And I know this is somewhat repetitive. But as I mentioned earlier, we do think about the countercyclical businesses in terms of our aggregate. So we're never quite as we look at sheet derivatives. We look at it and we'll make those decisions.

Target's a little bit lower than what we saw through the last rising rate cycle because we had the banking crisis in there. We actually talked out closer to 70. So it is slightly down from that.

I think it's an early guest, Casey. The question is how much, you know, as we've talked about every call, it is a competitive environment for deposits. How much longer is there and the environment impacts what the competitive nature of deposits is the balance sheet going to shrink at any point in that cycle. And so I say use as a proxy, but absolutely we would love to beat it.

Yeah, so it's been a long time I have a good talk to you. Brian, it's been a long time. Good talk to you. My back is one of those things that we're opportunistic about and as we look at capital, we look at it relative to a number of risk in the balance sheet, everything from our stress test capitalization. And we think very comfortable in that 10.25 to 10.5 range post this transaction. We expect to continue to generate a fair amount of capital which will support growth. We expect that we have the ability to continue to repatriate capital. Hard floor, there's not a hard ceiling. We continue to, as a board, to sit down every quarter as our financial performance and the outlook on the economy to evaluate where we are.

But given this transaction with the loans and the economy credit, so if we do think we have this buyback, we have been opportunistic over the course of a significant amount and clearly when in our view on sale and the market over the last, we will continue to use that as.

Thanks.

No, it's not a material impact that we've already marked on. That's how we use capital this quarter. I talked about in my opening remarks that average TCE was much higher than period NTCE. We marked these all at 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're 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 ASR. We stay active in the market throughout the quarter so that we have leverage to say if we mentioned the prior quarter, we had really significant loan growth in prior quarter, which we put that capital use in and then use the delta to figure out how we get within our CET1 target.

We don't set a dollar amount at the beginning of each quarter or with our board for eight 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.

Yeah. Good morning. CNI net charge has been fairly consistent. Obviously quarter to quarter to some ups and downs, but it's remained relatively consistent. I don't have any reason to believe it would materially deviate one way or the other in the upcoming waters. Probably not surprising where it's 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's essentially kind of where we've been seeing it. It's largely different.

This is Brian. Chris, it's largely a single.

Yeah. Yeah. In terms of putting unfunded commitment onto the balance sheet is net growth and customer broadening and deepening customer relationships.

Yeah, that's right.

No, thank you.

Well, I hope we can give you a mechanical answer that I'll give you my 40,000 foot view and it is. We're forecasting out a cycle and the competitive landscape and what happens is a little bit unknown to us like it is to everybody. We're placing a forecast out there that's in line with what we've seen in past cycles.

We are going to optimize our deposit pricing capability as best we can. I've said in the past the note, we're not playing solitaire in the marketplace and that we're going out there competing to broaden the deep and customer relationships. We're 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's 58 or 60 at this point because there are too many unknowns in the operating environment. But we are at every single day looking for how we strike that balance, providing real value to customers and prospective customers and do it.

Whatever to add to that, Ben, as you ask the question about hot money, we don't chase hot money. We do not have a large CD portfolio. We don't have a national deposit franchise where we market higher rates 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're going to call their banker here and says, hey, I've seen this or I've 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 have asked a lot of credit questions.

Their cost of funding is going to go up with each rate height to the extent that they have interest bearing deposits with us. They're going to try to offset that as an earning asset. And so don't think about it as chasing hot money. We 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're in, not just reward a new customer with top of a market. That's how we retain those relationships.

Oh, thank you.

Paper is the minimum. That is your immediate return if we just put this all in securities and you don't see significant rising rate environment. So when we think about the payback, we are assuming that, as Brian said earlier, approximately half of this is redeployed into loans in the coming years, and that payback comes significantly inclined. I'm not sure what assumptions you were using, Chris, in your question there. But I do want to reiterate, what we've put in the adept is the immediate impact in the current rate scenario.

Yeah, the Earnback, if you just assume we invested in floating rates in short-term security, that is a longer Earnback. If you, like we believe we can, that we invest in incremental customer relationships over the next couple of years.

To put that in line with my earlier, we talked about securities being so far plus currently. We talked about our loan deployment being in the SOFR plus mid-100 to mid-200. And so for every dollar that you redeploy, you pick up much more 100 plus basis points more on average than what will be in the security state one. So what we tried to do was tell you what the immediate impact is, and then it's upside from there so how quickly redeployed at 100, 150 or 200 basis points higher than what it will be in the security state one.

Yeah, we continue to see a very robust market for refinancing, create development deals. Some of this is commercial banks. It was a little tough, but alive on the line that we've gone over. You want to repeat that. I'm happy to repeat that. What I was saying is overall, the refinanced market has actually remained pretty solid. We've seen a number of deals taken out by commercial banks, but also by private credit, and much more often than not without any additional equity coming in. That's because overall property values have held up, I think, relatively well, expectations, even in markets with the greatest over supply, like the markets in Texas, where we've seen updated appraisals. Generally speaking, kind of where we have seen decreases, even the higher cases of those, it's been about a negative 20%.

And considering we've been very consistent in always underwriting to about 40% equity coming in the deals, and so 60% LPC, we've 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's a big contributor that this discipline, and not chasing the market. That's why even in peak interest rates, we have continued to perform very well in our creep portfolio.

Thank you, Eric. You're interested in patients as we try to work through some of the complexity of this quarter. We think we're very, very well positioned for the fourth quarter and then 27. Please reach out if there's anything at all we can do to give you additional information. Hope everyone has a wonderful day.

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