According to HousingWire, Tennessee-based First Horizon Bank is offloading roughly $4.5 billion worth of residential mortgage loans at approximately a 10% discount. The bank struck a deal in October and expects to close it early in the fourth quarter, though they haven't disclosed who's buying the portfolio. These mortgages carry relatively low interest rates averaging around 3.85%, and they come with minimal deposit relationships attached, which tells you the bank isn't losing much customer connection by selling them off.
The bank's leadership made it clear this move is strategic. They're essentially cleaning house to focus on what they call relationship banking, which means keeping mortgages connected to customers who also maintain deposits and other banking relationships with them. As the CEO explained it, they reviewed the portfolio and deliberately excluded anything tied to private clients or wealth management customers they want to keep. They're making this play right now because, as management noted, we're in an environment of rising interest rates, which makes lower-yielding mortgages less attractive to hold.
From a financial perspective, First Horizon took a substantial charge on this transaction. They recorded a $473 million hit to earnings in the quarter as they prepared for this sale. However, the bank expects this to work out well over time, projecting roughly a 4% benefit to earnings per share by 2027 and improving their return on tangible common equity. Their loan-to-deposit ratio should also improve to around 88%, which strengthens their overall liquidity position heading forward.
What I am seeing locally here in the Bay Area is that regional and national banks continue to recalibrate their lending strategies based on rate environments and deposit realities. When a bank of First Horizon's size is willing to sell off mortgage assets at a discount, it signals they're being cautious about their balance sheets and focusing more narrowly on their most valuable customer relationships. For our Bay Area buyers and sellers, this kind of portfolio shuffling among larger institutions can eventually affect mortgage availability and pricing in our market, especially as banks tighten up their lending criteria and focus on relationship customers rather than broad portfolio lending.
