First Horizon Corporation (FHN) is a regional banking powerhouse that has demonstrated remarkable resilience amidst the evolving economic landscape. With a rich history spanning over a century, the company has weathered various challenges, emerging as a formidable player in the financial services industry.

History and Growth

Founded in 1864, First Horizon's origins trace back to the establishment of First National Bank in Memphis, Tennessee. Over the decades, the company has undergone strategic expansions and mergers, steadily growing its footprint across the southeastern United States. In 2004, the company changed its name to First Horizon National Corporation to better reflect its diversified financial services offerings beyond traditional banking. A significant milestone was reached in 2010 when First Horizon acquired substantial assets from the failed Colonial Bank, expanding its presence in Florida and Alabama. This acquisition, while helping the company navigate the financial crisis, also presented challenges related to integrating new operations and assets.

The company's growth trajectory continued with the acquisition of IBERIABANK Corporation in 2016, a merger of equals that expanded First Horizon's reach into high-growth markets like Louisiana, Florida's Panhandle, and Texas. This strategic move, despite its complex integration process, solidified First Horizon's position as a leading regional banking franchise in the Southeast. Over the past decade, the company has actively diversified its business mix, developing strong capital markets and specialty lending divisions, including fixed income, mortgage warehouse lending, and equipment finance. This diversification strategy has enhanced the company's ability to navigate various economic cycles and interest rate environments.

Challenges and Resilience

However, First Horizon's journey has not been without challenges. In the early 2000s, the company faced legacy issues related to its pre-2009 mortgage origination business, resulting in costly legal settlements and regulatory actions. Additionally, in 2018, First Horizon undertook a major rebranding effort to unify its various brands under a single name. Throughout these challenges, the company has maintained a strong focus on risk management and credit quality, which has proven to be a key strength over the years.

Current Position and Business Model

As of June 30, 2024, First Horizon reported total assets of $82.23 billion, positioning it as a significant player in the regional banking landscape. The company's diversified business model encompasses a range of offerings, including commercial and consumer banking, wealth management, fixed income, and mortgage banking, catering to a diverse client base.

First Horizon's operations are structured into three main segments: Regional Banking, Specialty Banking, and Corporate.

The Regional Banking segment offers a variety of financial products and services, including traditional lending and deposit-taking, to commercial and consumer clients primarily in the southern U.S. and other selected markets. This segment also provides investment, wealth management, financial planning, trust, and asset management services for consumer clients.

The Specialty Banking segment consists of lines of business that deliver products and services with specialized industry knowledge. This includes asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, and mortgage banking. In addition to traditional lending and deposit-taking, Specialty Banking also offers treasury management solutions, loan syndications, and international banking. This segment also has a fixed income securities sales, trading, underwriting, and strategies business for institutional clients in the U.S. and abroad, as well as loan sales and portfolio advisory services.

The Corporate segment consists primarily of corporate support functions including risk management, audit, accounting, finance, executive office, and corporate communications. It also includes the revenue and expense associated with run-off businesses such as pre-2009 mortgage banking elements, run-off consumer and trust preferred loan portfolios, and other exited businesses.

Financials

One of the hallmarks of First Horizon's financial performance has been its consistent ability to generate robust net interest income. In the fiscal year 2023, the company reported net interest income of $2.54 billion, a testament to its effective management of interest rate dynamics and its focus on building a stable deposit base. The company's net interest margin, a key metric in the banking industry, stood at 3.38% as of June 30, 2024, reflecting its adept navigation of the evolving interest rate environment.

Despite the challenging macroeconomic conditions, First Horizon has maintained a strong credit profile, evidenced by its disciplined underwriting practices and proactive risk management. As of June 30, 2024, the company's non-performing assets ratio stood at 0.92%, a testament to its prudent approach to credit risk management. The allowance for credit losses, a crucial safeguard against potential loan defaults, was 1.44% of total loans and leases, highlighting the company's commitment to maintaining a robust risk profile.

In the face of rising interest rates and economic uncertainties, First Horizon has demonstrated its ability to adapt and capitalize on its diversified business model. The company's fixed income and mortgage banking operations have served as a valuable counterbalance to the potential pressure on net interest income, showcasing the benefits of its balanced revenue streams.

For the most recent quarter, First Horizon reported revenue of $802 million and net income of $218 million. The company's operating cash flow for the quarter was $389 million, while free cash flow stood at $383 million.

The Specialty Banking segment saw solid performance in the second quarter. Fixed income revenues decreased $12 million from the prior quarter, driven by a reduction in the markets' rate cut expectations and lower portfolio restructuring activity. However, mortgage banking income increased $1 million, driven by higher origination volume during the spring home-buying season. Overall, pre-tax income in the Specialty Banking segment increased $20 million compared to the first quarter, largely due to a $22 million decrease in provision for credit losses.

The pre-tax loss for the Corporate segment was $99 million in the second quarter, an improvement from the $129 million loss in the prior quarter, largely due to a $5 million increase in revenue and a $23 million decrease in noninterest expense.

Liquidity

First Horizon's robust liquidity position, with a loan-to-deposit ratio of 94% as of June 30, 2024, provides the company with the flexibility to navigate potential market disruptions and capitalize on emerging opportunities.

Future Outlook and Strategy

Looking ahead, First Horizon remains optimistic about its growth prospects, with a focus on strategic initiatives that aim to enhance shareholder value. The company's recent $1 billion share repurchase program, announced in October 2024, underscores its confidence in its long-term prospects and its commitment to efficient capital allocation.

For the fiscal year 2024, First Horizon has provided guidance indicating that total revenue will be flat to up 2% year-over-year, with the composition depending on whether the Federal Reserve cuts rates further. Expenses are expected to remain unchanged from previous guidance as the company continues to identify efficiencies to offset investments. Net charge-offs are trending favorably to previous guidance, but the range remains unchanged until more information is available on potential losses from recent weather events. The company is targeting a CET1 ratio of 11% in the near-term.

While the banking industry continues to face evolving challenges, such as regulatory changes and technological disruptions, First Horizon has proven its ability to adapt and thrive. The company's strong market position, diversified business model, and prudent risk management practices position it well to navigate the uncertain economic environment and create value for its shareholders.

Conclusion

Overall, First Horizon Corporation stands as a resilient regional banking powerhouse, leveraging its rich history, strategic vision, and operational expertise to navigate the dynamic financial landscape and deliver sustainable growth for its stakeholders. The company's diversified business model, with the Regional Banking, Specialty Banking, and Corporate segments, has allowed it to navigate the challenging operating environment. While the Corporate segment continues to face headwinds from run-off businesses, the strong performance of the Specialty Banking segment, particularly in fixed income and mortgage banking, has helped offset these impacts. First Horizon remains focused on serving its clients across its key markets and business lines while maintaining a disciplined approach to risk management.