Business Overview and History
First Horizon Corporation (FHN) is a well-established financial services firm with a rich history dating back over 160 years. Headquartered in Memphis, Tennessee, the company has evolved from its roots as a regional bank to become a diversified financial institution serving a wide range of customers across the southern United States.
First Horizon's origins can be traced back to 1864, when it was founded as First National Bank of Memphis. Over the decades, the bank grew organically and through strategic acquisitions, expanding its footprint and service offerings across key markets in Tennessee, Florida, North Carolina, and Louisiana. In 2004, the company changed its name to First Horizon National Corporation to better reflect its transformation into a diversified financial services provider. This corporate restructuring allowed the company to expand beyond traditional commercial and consumer banking into areas such as mortgage banking, fixed income securities sales and trading, and wealth management.
The company faced significant challenges during the 2008 financial crisis, particularly in its mortgage banking operations which were impacted by the housing market downturn. In response, First Horizon worked diligently to stabilize its business, strengthen its balance sheet, and refocus on core banking activities in the years following the crisis.
In 2020, First Horizon merged with IBERIABANK Corporation, a move that significantly bolstered its presence in the Southeast and solidified its position as a leading regional banking franchise. The combined entity, with over $80 billion in assets, now operates over 450 business locations across 24 states, serving a diverse client base ranging from commercial and consumer clients to wealth management and capital markets customers. The integration of the two legacy institutions was a major operational undertaking for the company over the next few years.
Throughout its history, First Horizon has remained committed to serving the financial needs of businesses and individuals across its regional markets. The company has consistently demonstrated its ability to weather economic downturns, adapt to industry changes, and pursue strategic growth opportunities to emerge as a stronger, more diversified financial institution.
Financial Overview
As of June 30, 2024, First Horizon reported total assets of $82.2 billion, with a loan portfolio of $62.8 billion and total deposits of $64.8 billion. The company's net interest income for the first half of 2024 was $1.25 billion, while non-interest income was $381 million. First Horizon's adjusted earnings per share for the six-month period was $0.67, up from $1.00 in the same period of the prior year.
The bank's credit quality remains strong, with a net charge-off ratio of 0.18% for the full year 2024, down from 0.28% in 2023. First Horizon's allowance for credit losses stood at 1.41% of total loans and leases as of June 30, 2024, reflecting the company's prudent risk management practices.
For the most recent quarter, First Horizon reported revenue of $703 million and net income of $166 million. Operating cash flow for the quarter was $191 million, while free cash flow stood at $174 million.
First Horizon delivered strong results in 2024, beating their guidance. They grew adjusted EPS by $0.12 or 8% from the prior year and achieved an adjusted return on tangible common equity of 12.6%. The company maintained a strong net interest margin of 3.35% despite declining interest rates in the back half of 2024. First Horizon's countercyclical businesses contributed an incremental $55 million to pre-provision net revenue in 2024.
Looking ahead to 2025, First Horizon has provided guidance for flat to 4% revenue growth, with adjusted expenses expected to increase between 2% and 4%. The company anticipates net charge-offs to be in line with its strong performance in 2024. First Horizon expects its balanced business model to create a resilient earnings stream across economic environments and is confident in its ability to deliver improved profitability in 2025 through increased loan demand, flexible deposit pricing, and strong countercyclical businesses.
Liquidity
First Horizon maintains a strong liquidity position, ensuring it can meet its financial obligations and customer needs. The company's diverse funding sources, including customer deposits, wholesale borrowings, and access to capital markets, provide a stable foundation for its operations. Additionally, First Horizon maintains a portfolio of high-quality liquid assets that can be quickly converted to cash if needed, further enhancing its liquidity profile.
The company plans to prioritize organic client growth and use share repurchases to return excess capital to shareholders, targeting a CET1 ratio of 10.5% to 11%.
Diversified Business Model and Ongoing Transformation
First Horizon's business model is well-diversified, with a balanced mix of commercial and consumer banking, wealth management, and capital markets activities. This diversification has proven to be a key strength, allowing the company to navigate various economic cycles and market conditions.
First Horizon operates through three main business segments: Regional Banking, Specialty Banking, and Corporate. The Regional Banking segment offers traditional lending and deposit-taking services 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 several lines of business that deliver specialized products and services with industry-specific expertise. This includes asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, and fixed income securities sales, trading, underwriting, and strategies for institutional clients.
The Corporate segment primarily includes corporate support functions such as risk management, audit, accounting, finance, executive office, and corporate communications. It also encompasses revenue and expenses associated with run-off businesses like pre-2009 mortgage banking elements, run-off consumer and trust preferred loan portfolios, and other exited businesses.
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 prior quarter. This was driven by a $10 million decline in net interest income and a $29 million increase in provision for credit losses, partially offset by a $4 million increase in noninterest income. Noninterest expense increased $9 million, largely due to higher outside services costs.
The Specialty Banking segment reported pre-tax income of $118 million, an increase of $20 million from the prior quarter. This was primarily driven by a $22 million decrease in provision for credit losses, partially offset by a $3 million decline in revenue and a $1 million decrease in noninterest expense. The fixed income business within Specialty Banking saw revenue decrease $12 million due to a reduction in expected rate cuts, while mortgage banking income increased $1 million on higher origination volume.
The Corporate segment had a pre-tax loss of $99 million, an improvement of $30 million from the prior quarter. This was largely due to a $9 million increase in net interest income and a $23 million decrease in noninterest expense, which included $3 million in restructuring costs compared to $5 million in the prior quarter.
In recent years, First Horizon has made strategic investments to enhance its technological capabilities and improve the customer experience. The company has completed several major infrastructure projects, including the implementation of a new general ledger system and the conversion of legacy clients to a unified treasury management platform. These initiatives are expected to drive operational efficiencies and better position the bank to meet the evolving needs of its clients.
Navigating Challenges and Positioning for the Future
Like the broader banking industry, First Horizon has navigated its fair share of challenges in recent years. The COVID-19 pandemic, for instance, tested the resilience of the company's business model, but First Horizon was able to successfully support its clients and communities while maintaining a strong financial position.
Looking ahead, First Horizon is well-positioned to continue its growth trajectory. The company's balanced business mix, prudent risk management, and strategic investments in technology and talent position it to capitalize on emerging opportunities and deliver sustainable value for its shareholders.
Key Risks and Uncertainties
As with any financial institution, First Horizon faces a range of risks, including credit risk, interest rate risk, and regulatory compliance. The company's exposure to the commercial real estate sector, for example, could be impacted by changing economic conditions and shifts in commercial real estate trends.
Additionally, the ongoing evolution of the banking industry, characterized by rapid technological advancements and changing customer preferences, presents both challenges and opportunities for First Horizon. The company's ability to adapt and innovate will be crucial in maintaining its competitive edge.
Conclusion
First Horizon Corporation has a long and storied history as a regional banking leader in the southern United States. Through strategic initiatives, disciplined risk management, and a diversified business model, the company has positioned itself for continued success in the years ahead. As it navigates the dynamic banking landscape, First Horizon remains committed to delivering exceptional service to its clients, supporting its communities, and creating value for its shareholders.