Executive Summary / Key Takeaways

• First Horizon Corporation (NYSE:FHN) is a regional bank leveraging its diversified business model and strong Southeast footprint to navigate macroeconomic uncertainty and competitive pressures.
• The company delivered solid Q1 2025 results, with net income available to common shareholders of $213 million ($0.41 diluted EPS), driven by net interest margin expansion (3.42%) and efficient expense management ($487 million total noninterest expense).
• Strategic investments in technology, including completed GL and Treasury system conversions, are enhancing operational efficiency and client experience, crucial for competing in a digitalizing landscape.
• Despite macroeconomic uncertainty and potential impacts from tariffs and interest rate volatility, management maintains its 2025 guidance, projecting total revenue growth within a defined range, adjusted expense increases of 2-4%, and net charge-offs of 15-25 basis points, supported by the countercyclical nature of certain businesses.
• FHN is focused on achieving an intermediate-term objective of 15%+ return on tangible common equity, with capital deployment prioritizing organic growth and opportunistic share repurchases ($365 million in Q1 2025) towards a near-term CET1 target of 11%.

The Resilient Core: A Diversified Regional Powerhouse

First Horizon Corporation, with a history spanning over 160 years, stands as a prominent financial holding company rooted deeply in the southern United States. Operating through its principal subsidiary, First Horizon Bank, the company has cultivated a diversified business model that extends beyond traditional regional banking. Its offerings encompass commercial, private banking, consumer, small business, wealth and trust management, retail brokerage, capital markets, fixed income, and mortgage banking services. This broad suite of services, delivered across a network of over 450 locations in 24 states (including over 400 banking centers in 12 states), positions FHN to capture a wide range of client needs within its attractive, growing footprint.

The company's journey has included significant milestones, notably the merger of equals with IBERIABANK Corporation in 2020, which expanded its geographic reach and capabilities. While a subsequent potential merger did not materialize, the focus has sharpened on leveraging existing strengths and making strategic investments to enhance the franchise's long-term value.

Navigating the Competitive Arena

Operating in the dynamic U.S. regional banking sector, First Horizon faces intense competition from a mix of large national banks, other regional players, and increasingly, fintech firms. Key publicly traded competitors include M&T Bank (MTB), Truist Financial (TFC), Fifth Third Bancorp (FITB), and Regions Financial (RF).

Compared to these peers, First Horizon differentiates itself through its extensive branch network in the Southeast and its diversified business segments, particularly its robust fixed income and capital markets operations (FHN Financial). While some competitors like Fifth Third have demonstrated advantages in tech-driven operational efficiency, and larger players like Truist benefit from scale, FHN's strategic focus on client relationships and its broad product set allow it to compete effectively within its chosen markets.

The competitive landscape is particularly acute in deposit gathering. The environment of higher-for-longer interest rates and a shrinking industry-wide deposit base has led to significant competitive pressures, with banks aggressively marketing promotional offers to attract and retain funds. First Horizon has experienced this directly, noting an uptick in competitive offers requiring responses to defend customer relationships. This dynamic impacts funding costs and net interest margin, underscoring the importance of efficient deposit pricing and client retention strategies.

Operational Backbone and Technology Investment

Operational excellence and technological capability are increasingly critical in the competitive banking sector. First Horizon has been actively investing in its infrastructure to enhance efficiency and improve the client experience. Recent achievements include the completion of significant "run-the-bank" technology projects, such as the general ledger conversion and the upgrade of the treasury management system in the latter half of 2024. These initiatives, while not always client-facing, are foundational to improving internal processes and supporting future growth.

Furthermore, the company has undertaken operational efficiency initiatives, including optimizing its retail staffing model and outsourcing property management functions. These efforts are aimed at controlling the expense base and improving overall productivity. Management anticipates that the benefits from these completed technology projects and ongoing efficiency measures will help offset future cost pressures, including planned investments in more client-facing technologies like online and mobile banking tools. While specific quantifiable advantages over competitors' technology platforms are not detailed, these investments are crucial for maintaining competitiveness and delivering the seamless digital experience clients expect.

Recent Financial Performance: Navigating Headwinds with Resilience

First Horizon demonstrated resilience in its financial performance during the first quarter of 2025, delivering net income available to common shareholders of $213 million, or $0.41 per diluted share. This represented a notable increase from $158 million ($0.29 diluted EPS) in Q4 2024 and $184 million ($0.33 diluted EPS) in Q1 2024.

Net interest income (NII) in Q1 2025 was $631 million, up $1 million from Q4 2024 and $6 million from Q1 2024. The sequential increase was driven by lower interest-bearing deposit costs, which offset declines in loan yields and volume. The year-over-year NII growth was primarily attributable to lower funding costs, despite lower yields on earning assets. The net interest margin expanded to 3.42% in Q1 2025, a 9 basis point increase from Q4 2024, reflecting the company's focus on managing deposit rates.

Noninterest income totaled $181 million in Q1 2025, a significant increase from $99 million in Q4 2024. This jump was largely due to the absence of securities losses related to an opportunistic portfolio restructuring that occurred in the prior quarter. Compared to Q1 2024, noninterest income decreased by $13 million, or 7%, primarily due to lower deferred compensation income.

Expense management remained a focus, with total noninterest expense decreasing to $487 million in Q1 2025, down $21 million from $508 million in Q4 2024 and $28 million from $515 million in Q1 2024. The sequential decrease was attributed to lower contributions, outside services (benefiting from completed technology projects), and checking account promotion expenses. The year-over-year decline reflected lower personnel expense and reduced FDIC special assessment expense, partially offset by Visa derivative valuation expense.

Pre-provision net revenue (PPNR), a key metric for management, saw growth, increasing by $16 million from Q4 2024 to $325 million in Q1 2025.

Balance Sheet Dynamics and Asset Quality

As of March 31, 2025, total assets stood at $81.49 billion. Period-end loans and leases were $62.21 billion, a decrease of $350 million (1%) from December 31, 2024. This decline was primarily in commercial loans, driven by seasonal reductions in loans to mortgage companies and paydowns in commercial real estate, partially offset by modest growth in consumer loans.

Total deposits were $64.20 billion, down $1.40 billion (2%) from December 31, 2024. This decrease was largely due to the payoff of brokered CDs, with both interest-bearing and noninterest-bearing deposits declining. Despite the decrease in balances, the company highlighted strong retention rates for promotional deposits and success in repricing interest-bearing accounts lower. Estimated uninsured deposits remained substantial at $26.70 billion (42% of total deposits) as of March 31, 2025.

Asset quality metrics remained relatively stable, although macroeconomic uncertainty prompted a modest increase in reserves. The allowance for loan and lease losses (ALLL) increased to $822 million (1.32% of total loans) from $815 million (1.30%) at December 31, 2024. The allowance for credit losses (ACL), which includes reserves for unfunded commitments, increased to $905 million (1.45% of total loans) from $894 million (1.43%). This reserve build was explicitly linked to deterioration in macroeconomic forecasts and emerging concerns about potential economic instability, including increased probability weighting on downside scenarios in credit loss modeling.

Net charge-offs in Q1 2025 were $29 million, or an annualized 19 basis points of average loans, an increase from $13 million (8 bps) in Q4 2024 but a decrease from $40 million (27 bps) in Q1 2024. Nonperforming loans (NPLs) increased slightly to $609 million (0.98% of total loans) from $602 million (0.96%) at December 31, 2024, driven by an increase in nonaccrual commercial and industrial (CI) loans, partially offset by a decline in commercial real estate (CRE) nonaccruals. Potential problem assets, representing loans with serious doubts about repayment ability, increased to $2.10 billion from $1.90 billion, primarily due to grade migration in the multi-family and industrial portfolios, influenced by supply dynamics and tariff uncertainty.

Capital Strength and Shareholder Returns

Maintaining a strong capital position is a key priority. As of March 31, 2025, the Common Equity Tier 1 (CET1) ratio was 10.93%, down from 11.20% at December 31, 2024. This decrease was primarily influenced by significant common stock repurchases, partially offset by net income less dividends. The company's near-term CET1 target remains at 11%, with a longer-term target of 10% to 10.5% contingent on greater clarity in the macroeconomic and regulatory environment.

First Horizon actively returned capital to shareholders. In Q1 2025, the company repurchased $365 million of common stock under its $1 billion program authorized in October 2024. Dividends declared in Q1 2025 included $0.15 per common share and $5 million in preferred stock dividends. The company's capital ratios remain above well-capitalized standards plus the required capital conservation buffer.

Outlook and Strategic Path Forward

First Horizon's management maintains its 2025 guidance, reflecting confidence in the company's ability to adapt to evolving conditions. The outlook base case initially assumed three rate cuts starting in March, but the guidance ranges are designed to accommodate various interest rate and economic scenarios.

• Total Revenue Growth: Expected to fall within the provided ranges, with the composition shifting between NII and countercyclical businesses depending on the rate environment.
• Adjusted Expenses: Expected to increase year-over-year by 2% to 4%, influenced by variable compensation tied to commission-based revenue and ongoing investments offset by efficiencies.
• Net Charge-offs: Guidance remains at 15 to 25 basis points, reflecting confidence in credit quality despite macroeconomic uncertainty.
• CET1 Target: Near-term target remains 11%, with flexibility to move above or below based on conditions.

The company's intermediate-term objective is to achieve a 15%+ return on tangible common equity. Management believes this is achievable and sustainable, driven by revenue growth opportunities (including potential loan growth and performance in countercyclical businesses), normalization of credit provision, and optimization of capital levels.

Key Risks and Headwinds

While optimistic, management acknowledges significant risks. Macroeconomic uncertainty, particularly related to the impact of tariffs on economic growth, inflation, and employment, poses a key risk that could affect loan demand and credit quality. The potential for a recession, while not the base case, is viewed as increasing if uncertainty persists.

Deposit competition is expected to remain intense in 2025, potentially pressuring funding costs. Credit quality, while currently strong, faces potential headwinds from grade migration in certain portfolios like multi-family and industrial, and ongoing performance in CRE office loans is closely monitored. Instability in property insurance markets in the Southeast due to increasing severe weather events is also a concern, potentially impacting loan losses and business decisions. Regulatory changes, including potential new requirements for banks over $50 billion in assets and the uncertain implementation of climate disclosure rules, could also introduce compliance costs and operational complexities.

Conclusion

First Horizon is strategically positioned as a diversified regional bank leveraging its strong Southeast footprint and operational enhancements to navigate a complex and uncertain macroeconomic landscape. The company's Q1 2025 results demonstrate its ability to generate solid earnings through disciplined expense management and margin expansion, supported by its balanced business model. While facing headwinds from macroeconomic uncertainty, intense deposit competition, and potential credit normalization in specific portfolios, management's commitment to operational efficiency, strategic technology investments, and prudent capital deployment towards a 15%+ ROTCE target underpins the investment thesis. Investors should monitor the trajectory of interest rates, the impact of macroeconomic factors on loan growth and credit quality, and the company's continued execution on its efficiency and technology initiatives as key indicators of its ability to deliver on its strategic objectives and enhance shareholder value.