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What Does the Fed Rate Hike Mean for FHN's Net Interest Income?
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Key Takeaways
FHN's variable-rate loans and maturing assets position it to benefit from higher rates and asset repricing.
FHN's NII rose 5% y/y to $679M in Q2'26, while NIM expanded 9 basis points.
Deposit pricing could offset some gains as higher funding costs and weaker loan demand pressure NII.
The Federal Reserve’s latest rate hike could provide another tailwind to First Horizon Corporation’s (FHN - Free Report) net interest income (NII), particularly as the bank enters a favorable asset-repricing cycle.
At its September meeting, the Fed raised the federal funds rate by 25 basis points to a target of 3.75-4%, citing still-elevated inflation. For banks such as First Horizon, higher benchmark rates can lift yields on variable-rate loans and newly originated credit while also improving reinvestment yields on maturing loans and securities. The extent of the benefit, however, depends on how quickly deposit and other funding costs rise.
FHN appears well-positioned for higher rates, with 58% of loans variable rate and another 12% in adjustable-rate mortgages as of June 2026. About $5 billion of fixed-rate loans and $1 billion of lower-yielding securities are set to mature or generate cash flows over the next year, creating reinvestment opportunities at higher yields. Supporting this view, FHN estimates that a 100-basis-point rate increase would boost NII by 2.9% over 12 months, suggesting the latest 25-basis-point hike should be modestly positive, though the benefit will depend on deposit pricing and balance-sheet trends.
First Horizon already entered the latest tightening move with positive NII momentum. In the second quarter of 2026, NII increased 5% year over year to $679 million, while the net interest margin expanded 9 basis points to 3.49%. Loan growth and lower funding costs supported the improvement, though lower loan yields partially offset the benefits.
Image Source: First Horizon Corporation
Deposit pricing remains the key offset. FHN’s interest-bearing deposit rate rose to 2.33% in the second quarter, while brokered deposits increased as the bank funded loan growth. Thus, faster deposit repricing could absorb part of the benefit from higher asset yields. Elevated rates could also eventually moderate loan demand and increase repayment pressure on weaker borrowers.
Overall, the Fed hike strengthens First Horizon’s near-term NII setup. Its high variable-rate loan mix, fixed-rate asset repricing opportunities and positive rate sensitivity should support earning-asset yields, but the ultimate upside will depend on whether asset yields continue to outpace funding-cost increases.
Impact of Rate Hike on Other Banks
Bank of America’s (BAC - Free Report) NII is likely to benefit from the Fed rate hike, given its relatively asset-sensitive balance sheet. As of June 2026, a 100-basis-point parallel increase in interest rates was estimated to increase Bank of America’s NII by $1 billion over 12 months. However, the benefit could be partially offset by higher deposit funding costs and potential declines in the value of securities holdings.
Citigroup (C - Free Report) is similarly positioned to benefit from higher interest rates. As of June 2026, a 100-basis-point increase in rates was estimated to increase NII by $1.2 billion over 12 months. However, higher deposit costs and potential mark-to-market losses on securities could temper the overall benefit for Citigroup from the rate increase.
FHN Price Performance & Zacks Rank
First Horizon’s shares have gained 2.6% in the past year compared with the industry’s growth of 6.1%.
View the Zacks #1 Rank List
Image: Bigstock
What Does the Fed Rate Hike Mean for FHN's Net Interest Income?
Key Takeaways
The Federal Reserve’s latest rate hike could provide another tailwind to First Horizon Corporation’s (FHN - Free Report) net interest income (NII), particularly as the bank enters a favorable asset-repricing cycle.
At its September meeting, the Fed raised the federal funds rate by 25 basis points to a target of 3.75-4%, citing still-elevated inflation. For banks such as First Horizon, higher benchmark rates can lift yields on variable-rate loans and newly originated credit while also improving reinvestment yields on maturing loans and securities. The extent of the benefit, however, depends on how quickly deposit and other funding costs rise.
FHN appears well-positioned for higher rates, with 58% of loans variable rate and another 12% in adjustable-rate mortgages as of June 2026. About $5 billion of fixed-rate loans and $1 billion of lower-yielding securities are set to mature or generate cash flows over the next year, creating reinvestment opportunities at higher yields. Supporting this view, FHN estimates that a 100-basis-point rate increase would boost NII by 2.9% over 12 months, suggesting the latest 25-basis-point hike should be modestly positive, though the benefit will depend on deposit pricing and balance-sheet trends.
First Horizon already entered the latest tightening move with positive NII momentum. In the second quarter of 2026, NII increased 5% year over year to $679 million, while the net interest margin expanded 9 basis points to 3.49%. Loan growth and lower funding costs supported the improvement, though lower loan yields partially offset the benefits.
Image Source: First Horizon Corporation
Deposit pricing remains the key offset. FHN’s interest-bearing deposit rate rose to 2.33% in the second quarter, while brokered deposits increased as the bank funded loan growth. Thus, faster deposit repricing could absorb part of the benefit from higher asset yields. Elevated rates could also eventually moderate loan demand and increase repayment pressure on weaker borrowers.
Overall, the Fed hike strengthens First Horizon’s near-term NII setup. Its high variable-rate loan mix, fixed-rate asset repricing opportunities and positive rate sensitivity should support earning-asset yields, but the ultimate upside will depend on whether asset yields continue to outpace funding-cost increases.
Impact of Rate Hike on Other Banks
Bank of America’s (BAC - Free Report) NII is likely to benefit from the Fed rate hike, given its relatively asset-sensitive balance sheet. As of June 2026, a 100-basis-point parallel increase in interest rates was estimated to increase Bank of America’s NII by $1 billion over 12 months. However, the benefit could be partially offset by higher deposit funding costs and potential declines in the value of securities holdings.
Citigroup (C - Free Report) is similarly positioned to benefit from higher interest rates. As of June 2026, a 100-basis-point increase in rates was estimated to increase NII by $1.2 billion over 12 months. However, higher deposit costs and potential mark-to-market losses on securities could temper the overall benefit for Citigroup from the rate increase.
FHN Price Performance & Zacks Rank
First Horizon’s shares have gained 2.6% in the past year compared with the industry’s growth of 6.1%.
Image Source: Zacks Investment Research
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.