Dip in Mortgage Rates Gives First Horizon a Boost

Why It Matters

The growth underscores First Horizon’s strategic capture of a recovering mortgage‑warehouse market, boosting earnings and positioning the bank for higher revenue in a low‑rate environment.

Key Takeaways

• Loans to mortgage firms rose 20% QoQ.
• Mortgage warehouse drove 2% total loan growth Q4.
• Home sales hit two‑year high in December.
• Bank forecasts double‑digit mortgage warehouse growth 2026.
• Competitors exiting, giving First Horizon market share boost.

Pulse Analysis

The recent dip in mortgage rates is reshaping the U.S. housing finance landscape, and First Horizon is turning that shift into a growth engine. In the fourth quarter of 2025 the bank’s loans to mortgage companies jumped 20 % quarter‑over‑quarter, adding $776 million and becoming the single biggest contributor to its modest 2 % overall loan expansion. Seasonally adjusted home sales climbed to their highest level in more than two years, providing fresh pipeline for warehouse financing. By capitalizing on the retreat of larger banks from the space, First Horizon has expanded its market share in a niche that traditionally offers higher yields and tighter client relationships.

The surge in mortgage‑warehouse lending also bolstered First Horizon’s bottom line. Adjusted net income rose 14 % year‑over‑year to $259 million, while earnings per share beat expectations by 6 cents, driven in part by $4 million of incremental profit from the mortgage portfolio. Although the bank’s broader NBFI exposure raised eyebrows after fall‑season credit losses at peers, First Horizon’s internal analysis separates mortgage‑warehouse risk from more volatile private‑credit assets, and its allowance for credit losses actually fell in Q4. This risk discipline reassures investors that the growth is sustainable.

Looking ahead, management expects mortgage‑warehouse lending to deliver double‑digit percentage growth throughout 2026 as rates continue to ease and refinancing activity picks up. The bank’s revenue guidance of 3 %‑7 % growth excludes deferred compensation, reflecting confidence that the mortgage segment will offset pressure from lower loan yields elsewhere. Competitors such as Comerica and Flagstar have exited the market, leaving a gap that First Horizon and other regional players like Texas Capital are eager to fill. For analysts, the bank’s ability to scale this niche while managing NBFI risk will be a key barometer of its earnings trajectory.