Company Overview and History

First Horizon Corporation (FHN), a leading regional banking powerhouse, has demonstrated remarkable resilience in the face of ongoing economic challenges. With a strong presence across the southern United States, the company has leveraged its diversified business model to navigate the volatile market environment and deliver consistent financial performance.

Established in 1864 as a small community bank in Memphis, Tennessee, First Horizon has a rich history spanning over 150 years. The company's origins trace back to the First National Bank of Memphis, which later merged with other regional banks to form the modern-day First Horizon Corporation. Throughout the 1970s and 1980s, First Horizon expanded its footprint through a series of strategic acquisitions, growing its commercial and retail banking operations throughout Tennessee and neighboring states. This period of growth laid the foundation for the company to become a regional banking powerhouse.

Overcoming Challenges and Strategic Growth

The early 2000s brought significant challenges for First Horizon as it navigated the fallout from the subprime mortgage crisis. The company's pre-2009 mortgage banking operations led to costly legal settlements and increased regulatory scrutiny. However, under new leadership, First Horizon was able to refocus its efforts on its core commercial and consumer banking businesses. In 2020, First Horizon merged with IBERIABANK in a transformative deal that created one of the largest regional banks in the southern United States. This merger expanded First Horizon's geographic reach and enhanced its capabilities in wealth management, business banking, and specialty lending. The integration of the two companies, while complex, allowed First Horizon to emerge as a stronger, more diversified financial institution.

Financial Position

As of December 31, 2023, First Horizon reported total assets of $81.66 billion, positioning it as a significant player in the regional banking space. The company's loan portfolio, which stood at $61.29 billion as of the same date, is primarily composed of commercial and consumer real estate loans, showcasing its deep roots in the communities it serves.

Financials

One of the hallmarks of First Horizon's success has been its ability to maintain a strong net interest income despite the challenges posed by economic headwinds. In the third quarter of 2024, the company reported net interest income of $631 million, a testament to its disciplined approach to asset-liability management and its focus on growing customer relationships.

For the fiscal year 2023, First Horizon reported revenue of $3.15 billion and net income of $897 million. The company generated operating cash flow of $1.30 billion and free cash flow of $1.26 billion. In the most recent quarter (Q2 2024), revenue was $1.319 billion with net income of $218 million. Operating cash flow for the quarter was $5 million, while free cash flow was negative $6 million.

The company's deposit base, which totaled $65.78 billion as of December 31, 2023, has remained a cornerstone of its funding strategy. First Horizon has demonstrated its ability to attract and retain a diverse mix of deposits, including both commercial and consumer accounts, providing a stable source of low-cost funding to support its lending activities.

Business Segments

First Horizon operates through three main business segments: Regional Banking, Specialty Banking, and Corporate.

The Regional Banking segment offers 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. In the second quarter of 2024, the Regional Banking segment generated pre-tax income of $241 million, a decrease of $44 million compared to the first quarter of 2024.

The Specialty Banking segment consists of specialized business lines such as asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, and mortgage. It also includes FHN Financial, the company's fixed-income securities sales, trading, underwriting, and strategies business for institutional clients. In the third quarter of 2024, the Specialty Banking segment generated $137 million in revenue, with the fixed-income division showing particularly strong performance. Pre-tax income for this segment was $118 million in the second quarter of 2024, an increase of $20 million compared to the first quarter.

The Corporate segment consists primarily of corporate support functions and includes revenue and expense associated with run-off businesses. In the second quarter of 2024, the Corporate segment reported a pre-tax loss of $99 million, an improvement from the $129 million loss in the first quarter.

Geographic Markets and Performance

First Horizon primarily operates in the southern United States, with the largest geographical concentrations of loan balances as of June 30, 2024 being in Tennessee (37%), Florida (19%), North Carolina (13%), and Louisiana (12%). No other state represented more than 10% of the portfolio. This geographic diversification helps to mitigate regional economic risks and provides opportunities for growth across multiple markets.

Operational Efficiency

While navigating the current economic landscape, First Horizon has also remained focused on enhancing its operational efficiency and controlling expenses. In the third quarter, the company implemented strategic initiatives to optimize its retail staffing model and outsource property management functions, resulting in a $2 million reduction in adjusted expenses compared to the previous quarter.

Future Outlook and Guidance

Looking ahead, First Horizon remains cautiously optimistic about the future, acknowledging the potential for continued interest rate volatility and economic uncertainty. The company has provided guidance for the fourth quarter of 2024, anticipating total revenue to be flat to up 2% year-over-year, with the composition dependent on the Federal Reserve's monetary policy decisions. Expense guidance remains unchanged, as the company is committed to continuing to identify efficiencies to help offset investments.

For net charge-offs, First Horizon has left the guidance range unchanged until more information is available on the potential for losses from recent weather events in their footprint. The company continues to target an 11% CET1 ratio near-term. Looking further ahead to 2025, First Horizon expects to drive positive pre-provision net revenue (PPNR) growth, though specific numerical targets were not provided.

Liquidity and Capital Position

Despite the challenges, First Horizon's strong capital position, with a common equity Tier 1 ratio of 11.2% as of September 30, 2024, provides the flexibility to navigate the current environment and pursue strategic growth opportunities. The company's board of directors has also recently authorized a new $1 billion common stock repurchase program, demonstrating its confidence in the long-term prospects of the business.

As of June 30, 2024, First Horizon reported a debt-to-equity ratio of 0.16 and held $1.45 billion in cash. The company had $34.36 billion in available liquidity, including $9.29 billion in FHLB borrowing capacity, $24.20 billion in discount window access, and $978 million in unencumbered securities. First Horizon's current ratio and quick ratio both stood at 1.14, indicating a solid short-term liquidity position.

Conclusion

In conclusion, First Horizon Corporation has proven to be a resilient and adaptable financial institution, leveraging its diversified business model and disciplined approach to weathering the ongoing economic storms. With a focus on maintaining a strong net interest income, growing its deposit base, and capitalizing on its specialty banking operations, the company is well-positioned to continue delivering value to its shareholders in the years to come. The company's strong performance across its business segments, coupled with its robust liquidity position and strategic focus on operational efficiency, underscore its ability to navigate the complex financial landscape and pursue sustainable growth opportunities in its core southern U.S. markets.