Business Context and Reporting Period
Company: First Horizon Corporation (FHN)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2025
Overview: FHN is a financial holding company headquartered in Memphis, Tennessee, with its principal subsidiary being First Horizon Bank. The company operates through three reportable segments: Commercial, Consumer & Wealth; Wholesale; and Corporate. As of March 31, 2025, FHN operated over 450 business locations across 24 states.
Key Financial Metrics
| Metric | Q1 2025 | Q1 2024 | Q4 2024 |
|---|---|---|---|
| Net Income (Attributable to Common) | $213 million | $184 million | $158 million |
| Diluted EPS | $0.41 | $0.33 | $0.29 |
| Net Interest Income | $631 million | $625 million | $630 million |
| Net Interest Margin (NIM) | 3.42% | 3.37% | 3.33% |
| Noninterest Income | $181 million | $194 million | $99 million |
| Noninterest Expense | $487 million | $515 million | $508 million |
| Provision for Credit Losses | $40 million | $50 million | $10 million |
| Total Assets | $81.49 billion | $81.80 billion | $82.15 billion |
| Total Loans and Leases | $62.22 billion | $61.75 billion | $62.57 billion |
| Total Deposits | $64.21 billion | $65.58 billion | $65.58 billion |
| Common Equity Tier 1 Ratio | 10.93% | 11.31% | 11.20% |
| Return on Average Assets (ROAA) | 1.11% | 0.97% | 0.82% |
| Return on Average Tangible Common Equity | 12.81% | 10.95% | 9.17% |
Material Changes vs. Prior Periods
- Profitability: Net income available to common shareholders increased 16% year-over-year (YoY) to $213 million, driven by lower funding costs and reduced noninterest expenses. Compared to Q4 2024, net income increased significantly, aided by the absence of a $91 million securities loss recorded in the prior quarter.
- Net Interest Income (NII): NII remained relatively flat quarter-over-quarter (QoQ) at $631 million but increased $6 million YoY. The Net Interest Margin expanded to 3.42%, driven by a 38 basis point decrease in the cost of interest-bearing deposits, partially offset by a 20 basis point decline in loan yields.
- Noninterest Income: Total noninterest income decreased 7% YoY to $181 million, primarily due to an $11 million decline in deferred compensation income. However, it increased 83% QoQ, largely because Q4 2024 included a $91 million loss from an opportunistic securities portfolio restructuring.
- Noninterest Expense: Expenses decreased 5% YoY to $487 million, reflecting lower personnel costs ($22 million decrease) and reduced FDIC special assessment expenses ($11 million decrease). This was partially offset by a $5 million Visa derivative valuation expense.
- Asset Quality: The Allowance for Loan and Lease Losses (ALLL) increased to $822 million (1.32% of total loans) from $815 million at year-end, driven by deteriorating macroeconomic forecasts. Net charge-offs were $29 million (19 basis points), an increase from $13 million in Q4 2024 but a decrease from $40 million in Q1 2024.
- Balance Sheet: Total loans decreased 1% QoQ to $62.2 billion, primarily due to seasonal reductions in loans to mortgage companies and CRE paydowns. Total deposits decreased 2% QoQ to $64.2 billion, driven by the payoff of $559 million in brokered CDs.
Guidance, Outlook, and Risks
- Capital Management: FHN maintains a "well-capitalized" status. The Common Equity Tier 1 ratio decreased slightly to 10.93% due to share repurchases, though it remains well above regulatory minimums and the capital conservation buffer. The company issued $500 million of Fixed Rate/Floating Rate Senior Notes in March 2025.
- Share Repurchases: Under the October 2024 program, FHN repurchased approximately 17.5 million shares in Q1 2025 for $365 million. Approximately $511 million remains available under the $1 billion program.
- Macroeconomic Outlook: Management notes uncertainty regarding inflation, recession risks, and the impact of new tariffs announced in early 2025. The yield curve has steepened in early 2025 following Federal Reserve rate cuts in late 2024.
- Key Risks:
- Interest Rate Risk: While NII expanded in Q1, future results depend on the slope of the yield curve and the ability to manage deposit costs in a competitive environment.
- Credit Risk: Potential problem assets increased to $2.1 billion, driven by grade migration in multi-family and industrial portfolios. Management cites strong underwriting but notes exposure to economic instability.
- Regulatory & Climate: Uncertainty remains regarding the implementation of SEC Climate Disclosure Rules and California GHG reporting laws, which could increase compliance costs.
- Legacy Exposures: Repurchase and foreclosure liability related to pre-2009 mortgage business remains at $15 million.
Investor Verification Checklist
- Deposit Cost Stability: Verify if the reduction in interest-bearing deposit costs (down 38 bps QoQ) is sustainable given competitive pressures and potential rate cuts.
- Loan Yield Compression: Monitor the trend of loan yields, which decreased 20 bps QoQ, and its impact on future Net Interest Margin.
- Credit Provisioning: Assess the adequacy of the $40 million provision for credit losses given the increase in potential problem assets and macroeconomic uncertainty.
- Noninterest Income Volatility: Review the composition of noninterest income, noting the significant impact of deferred compensation and securities gains/losses on quarterly comparability.
- Capital Ratios: Confirm that capital ratios remain above the "well-capitalized" threshold plus the conservation buffer as share repurchases continue.
- Visa Derivative Liability: Track the $5 million valuation adjustment related to Visa Class B share sales and potential future impacts.