First Horizon Corporation (NYSE: FHN) is a leading financial services company headquartered in Memphis, Tennessee. With a rich history spanning over 160 years, FHN has established itself as a diversified provider of banking, wealth management, and capital markets services, primarily serving the southern United States.

Financials

FHN's annual net income stood at $897 million in 2023, while its annual revenue reached $4.779 billion. The company's annual operating cash flow was $1.248 billion, and its annual free cash flow amounted to $1.211 billion. These robust financial metrics underscore FHN's ability to generate consistent returns for its shareholders.

In the first quarter of 2024, FHN reported adjusted earnings per share of $0.36, a $0.01 increase from the prior quarter. The company's pre-provision net revenue increased by $1 million, driven by modest improvements in net interest income and traditional banking fees. FHN's adjusted return on tangible common equity improved to 12%, reflecting the benefits of returning excess capital to shareholders through share repurchases.

Business Overview

FHN's diversified business model has enabled the company to navigate the changing economic landscape effectively. The company's regional banking segment, which offers a range of financial products and services, including traditional lending and deposit-taking, contributed $285 million in pre-tax income during the first quarter of 2024. The specialty banking segment, which encompasses lines of business with specialized industry knowledge, generated $98 million in pre-tax income, driven by strong performance in the fixed income and mortgage banking divisions.

Geographic Breakdown and Revenue Drivers

FHN's principal markets are located in the southern and southeastern United States, including major Gulf Coast and southern Atlantic seacoast markets. The company's largest geographical concentrations of loan balances as of March 31, 2024, were in Florida (27%), Texas (13%), North Carolina (12%), Georgia (10%), Tennessee (9%), and Louisiana (8%).

In terms of revenue breakdown, FHN's noninterest income for the first quarter of 2024 increased by $23 million, or 13%, compared to the same period in the previous year. This growth was primarily driven by a $13 million increase in fixed income revenue, reflecting more favorable market conditions, and a $4 million increase in mortgage banking income due to higher origination volume and improved gain-on-sale spreads.

Navigating Competitive Pressures and Deposit Dynamics

FHN has faced increased competitive pressures, particularly in the deposit market, as banks compete for growth against the backdrop of a higher-for-longer interest rate environment and a shrinking deposit base. The company reported that it saw a significant uptick in competitive deposit offers, with over $1 billion in balances migrating from lower-cost accounts into higher-rate retention offers during the latter part of the second quarter.

To address this challenge, FHN has remained focused on defending existing customer relationships and maintaining a well-diversified and stable funding mix across its footprint and specialty lines of business. As of March 31, 2024, commercial deposits accounted for 55% of total deposits, while consumer deposits made up the remaining 45%. The company's total estimated uninsured deposits were $27.4 billion, representing 42% of total deposits, with $5.5 billion, or 8% of total deposits, being collateralized.

Liquidity

FHN maintains a strong liquidity position, with available liquidity sources including cash, incremental borrowing capacity at the FHLB, access to Federal Reserve Bank borrowings, and unencumbered securities. As of March 31, 2024, the company's total available liquidity stood at $36.4 billion.

In terms of capital management, FHN achieved its near-term target of an 11% common equity Tier 1 ratio during the first quarter of 2024. The company plans to maintain its CET1 ratio around this level and will reassess moving towards its longer-term target of 10% to 10.5% as it gains more certainty around the macroeconomic and regulatory environment.

Outlook

FHN has provided updated guidance for its net interest income (NII) in 2024, revising the range to flat to down 2% from the previous guidance of the lower end of the prior range. This adjustment reflects the impact of a more competitive deposit environment and a higher-for-longer interest rate environment, which have pressured funding mix and deposit costs more than anticipated.

Despite the near-term challenges, FHN remains optimistic about its ability to navigate the evolving economic and competitive landscape. The company is focused on identifying operational efficiencies to counter revenue headwinds, while maintaining a disciplined approach to capital management and credit performance to deliver attractive returns for its shareholders.

Risks and Challenges

As with any financial institution, FHN faces a range of risks and uncertainties that could impact its performance. These include macroeconomic factors such as the pace of interest rate normalization by the Federal Reserve, the potential for a recession, and the ongoing impact of the COVID-19 pandemic. Additionally, the company is subject to regulatory changes and heightened competition in its markets, which could affect its profitability and growth prospects.

Conclusion

FHN's diversified business model, strong liquidity position, and disciplined capital management have positioned the company to navigate the changing tides in the financial services industry. While facing near-term challenges in the deposit market, the company remains focused on identifying operational efficiencies, maintaining credit quality, and delivering consistent returns to its shareholders. With its established presence in the southern United States and a commitment to serving its clients and communities, FHN is well-poised to continue its legacy of success in the years to come.