First Horizon Corporation (FHN.N) 3Q26 Review - Balance Sheet Restructuring Creates "Optionality"

Results this quarter were marginally softer than expected, however the balance sheet clean-up, in our view, creates a bit more flexibility on the L/D ratio and should limit relative funding cost pressures as a Mid-90's goes to upper-80's ratio while also reducing the drag on a fairly unproductive portion of the balance sheet. Fee income trends were better than expected, however, with the rapid rate changes it is hard to have overall confidence that the newfound progress will be sustained in 2027. The capital base continues to be healthy and provides optionality for an increased 4Q26 buyback. While we did lower our EPS modestly, we kept our TP at $28. Our 2026/27E EPS compression was driven by a softer NII from a smaller balance sheet. We do believe fee income improvement could drive a modestly higher comp expense base in 2026 vs 2025, but would likely be market volatility driven. We lowered our LLP expense modestly, largely to account for the healthy credit trends and limited LLP expen