Business Overview First Horizon Corporation (FHN), a prominent financial services company based in Memphis, Tennessee, has demonstrated its ability to navigate the dynamic banking industry with a diversified business model and a steadfast commitment to serving its clients and communities. With a rich history spanning over a century, First Horizon has evolved into a regional banking powerhouse, offering a comprehensive suite of financial products and services to its customers across the southern United States.
First Horizon's origins can be traced back to 1864 when it was founded as First National Bank in Memphis, Tennessee. For over a century, the company operated primarily as a regional bank in the southern United States. In 1994, First Tennessee Bank, a predecessor of First Horizon, acquired Capital Bank Financial, expanding its footprint across the Southeast. In 2000, the company changed its name to First Horizon National Corporation to reflect its growing diversification beyond traditional banking.
Over the next decade, FHN made several strategic acquisitions, including Bumpus Mortgage Systems in 2001 and Magna Bank in 2005, solidifying its presence in mortgage banking and wealth management. The company faced significant challenges during the 2008 financial crisis, as its mortgage banking business experienced high levels of defaults and repurchase demands. FHN worked to strengthen its balance sheet and reduce its exposure to risky mortgage assets. In 2013, the company sold its national mortgage servicing platform to focus on its regional banking operations.
In 2020, First Horizon merged with IBERIABANK in a transformative "merger of equals" transaction. This deal expanded FHN's footprint to 12 states, making it one of the largest regional banks in the southern United States. The integration process was extensive, as the company worked to streamline operations and capitalize on revenue synergies between the two organizations.
Today, First Horizon operates through its principal subsidiary, First Horizon Bank, which provides commercial, private banking, consumer, and wealth management services. The company's business is organized into three key segments: Regional Banking, Specialty Banking, and Corporate. The Regional Banking segment focuses on traditional lending and deposit-taking activities, as well as investment, wealth management, financial planning, trust, and asset management services for consumer clients. The Specialty Banking segment delivers specialized financial solutions, including asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, and mortgage services. It also includes a fixed income securities sales, trading, underwriting, and strategies business for institutional clients. The Corporate segment consists primarily of corporate support functions and manages run-off businesses. With over 450 business locations across 24 states, FHN has established itself as a leading regional banking franchise in the Southeast.
Financial Performance and Ratios As of June 30, 2024, First Horizon reported total assets of $82.23 billion, reflecting a modest increase compared to the $81.66 billion reported as of December 31, 2023. The company's loan portfolio stood at $62.78 billion, up 2% from the previous year-end, driven by growth in commercial loans and loans to mortgage companies. Deposits, the cornerstone of the company's funding, totaled $64.79 billion, a slight decrease of 1% from the end of 2023.
First Horizon's financial ratios paint a picture of a well-capitalized and efficiently managed institution. As of June 30, 2024, the company's common equity Tier 1 (CET1) ratio, a key measure of capital adequacy, stood at 11.05%, slightly above the regulatory well-capitalized threshold of 11%. The total risk-based capital ratio was 13.67%, further reinforcing the company's strong capitalization. Additionally, the tangible common equity to tangible assets ratio, a metric of balance sheet strength, was a robust 8.14% at the end of the second quarter.
For the second quarter of 2024, First Horizon reported net interest income of $629 million, up $4 million from the prior quarter, driven by higher loan volumes and yields, partially offset by higher funding costs. Noninterest income was $186 million, down $8 million from the prior quarter, primarily due to a decrease in fixed income production, partially offset by higher traditional banking fees. Noninterest expense was $500 million, down $15 million from the prior quarter, largely reflecting lower personnel and deposit insurance expense, partially offset by higher outside services expense.
The provision for credit losses was $55 million, up from $50 million in the prior quarter, largely tied to modest grade migration and an evolving macroeconomic outlook. Net income available to common shareholders was $184 million, or $0.34 per diluted share, compared to $184 million, or $0.33 per diluted share, in the prior quarter.
For the most recent quarter, First Horizon reported revenue of $802 million, net income of $218 million, operating cash flow of $389 million, and free cash flow of $383 million.
Navigating Interest Rate Environments One of the key challenges facing First Horizon, like many other banks, is the dynamic interest rate environment. The company has demonstrated its ability to adapt to rising and falling interest rates, leveraging its diversified business model to mitigate the impact on its net interest margin (NIM). During periods of rate hikes, the company's specialty banking operations, particularly its fixed-income trading business, have served as a counterbalance to compression in net interest income.
In the second quarter of 2024, First Horizon's NIM stood at 3.38%, relatively stable compared to the previous quarter, as higher loan yields partially offset the increase in deposit costs. The company has been proactive in managing its deposit portfolio, actively repricing promotional accounts and leveraging its diverse funding sources, including brokered deposits, to maintain a competitive edge.
Looking ahead, First Horizon's management has expressed cautious optimism about the future, acknowledging the potential for continued margin pressure as the Federal Reserve navigates the interest rate landscape. However, the company's emphasis on deepening client relationships, expanding its specialty banking capabilities, and maintaining disciplined expense management positions it well to navigate the evolving market conditions.
Operational Excellence and Strategic Initiatives First Horizon has a strong track record of operational excellence, as evidenced by its consistent cost control measures and ongoing investments in technology and infrastructure. The company has implemented various efficiency initiatives, including the optimization of its retail staffing model and the outsourcing of property management functions, which have contributed to its ability to maintain a robust efficiency ratio.
Furthermore, First Horizon is actively pursuing strategic initiatives to enhance its competitive positioning and drive long-term growth. The company is focused on expanding its specialty banking offerings, leveraging its expertise in areas such as asset-based lending, mortgage warehouse financing, and fixed-income securities trading. Additionally, First Horizon is making investments to strengthen its digital capabilities and improve the overall client experience, positioning the company to capitalize on evolving consumer preferences and industry trends.
Risks and Challenges Despite its strong performance, First Horizon is not immune to the challenges facing the banking industry. The company operates in a highly competitive environment, with regional and national banks vying for market share. Additionally, regulatory changes, such as the implementation of new capital requirements for banks over $100 billion in assets, could impact First Horizon's operating landscape and necessitate additional investments in compliance and risk management.
Furthermore, the company is exposed to regional economic conditions, particularly in its key markets of Tennessee, Florida, and North Carolina. Natural disasters, such as hurricanes, pose a risk to the company's operations and asset quality in these regions. First Horizon has demonstrated its resilience in the face of these challenges, but continued vigilance and proactive risk management will be crucial to its long-term success.
Outlook and Guidance Despite the challenges facing the banking industry, First Horizon remains well-positioned to deliver value to its shareholders. The company's diversified business model, strong capital position, and disciplined expense management have enabled it to navigate the evolving market conditions effectively. As First Horizon continues to invest in its specialty banking capabilities, enhance its digital offerings, and deepen its client relationships, it is poised to capitalize on growth opportunities and solidify its status as a leading regional banking powerhouse.
For the remainder of 2024, First Horizon expects total revenue to be flat to up 2% year-over-year, maintaining its previous guidance. The composition of this growth will depend on the Federal Reserve's actions on interest rates. The company anticipates continued expense discipline, with guidance on expenses remaining unchanged as they identify efficiencies to help offset investments.
Regarding net charge-offs, First Horizon has left the range unchanged, noting they are trending favorably but want to see more information on potential losses from recent weather events. The company continues to target an 11% CET1 ratio near-term, reiterating its previous guidance.
Looking ahead to 2025, First Horizon expects to grow pre-provision net revenue (PPNR) compared to 2024, although specific numerical guidance was not provided. This outlook reflects the company's confidence in its strategic initiatives and ability to navigate the evolving banking landscape.
Overall, First Horizon's resilience, operational excellence, and strategic vision make it a compelling investment opportunity for those seeking exposure to the dynamic and evolving banking sector. The company's ability to maintain stable financial performance while investing in growth initiatives positions it well for long-term success in the competitive regional banking market.