First Horizon Corporation (FHN) is a regional banking powerhouse that has demonstrated remarkable resilience in the face of evolving economic conditions. With a strong foothold in the southern United States, the company has leveraged its diversified financial services offerings to navigate the challenges of the current market landscape.
Company History and Growth
Established in 1864 as First National Bank of Memphis, First Horizon's rich history spans over a century and a half, showcasing its ability to adapt and thrive through various economic cycles. The company has grown significantly through organic expansion and strategic acquisitions, solidifying its presence across the southern United States. In the 1990s and 2000s, First Horizon became renowned for its mortgage banking operations, originating and servicing home loans nationwide. However, the 2008 financial crisis posed significant challenges to this segment, prompting a strategic shift towards a more diversified regional banking model.
The company's evolution continued with the acquisition of Atlanta-based First Horizon Bank in 2010, further expanding its footprint in the Southeast. A major milestone was reached in 2020 with the merger of equals with IBERIABANK, which substantially enhanced First Horizon's commercial, private banking, and wealth management capabilities. Today, the company operates over 450 business locations across 24 states and employs approximately 7,300 associates, underscoring its significant presence in the regional banking sector.
Business Overview
First Horizon's principal subsidiary, First Horizon Bank, provides a comprehensive suite of commercial, private banking, consumer, small business, wealth and trust management, retail brokerage, capital markets, fixed income, and mortgage banking services. This diverse product portfolio has been instrumental in the company's sustained success and ability to adapt to changing market conditions.
First Horizon's business operations are organized 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, deposit-taking, investment, wealth management, financial planning, trust, and asset management services to commercial and consumer clients primarily in the southern United States and other selected markets. The Specialty Banking segment consists of various lines of business that provide more specialized product offerings and services with industry-specific knowledge, including asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, fixed income securities sales and trading, loan sales, portfolio advisory services, and derivative sales. The Corporate segment primarily consists of corporate support functions and run-off businesses.
Financials
As of June 30, 2024, First Horizon boasted total assets of $82.23 billion, making it a formidable player in the regional banking sector. The company's net interest income for the first six months of 2024 stood at $1.25 billion, highlighting its ability to generate robust revenue streams even in a challenging interest rate environment.
In 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 Regional Banking segment generated pre-tax income of $241 million in the second quarter of 2024, a decrease of $44 million compared to the prior quarter. This decrease was driven by a decline in average noninterest-bearing deposits and higher interest-bearing deposit costs, partially offset by higher loan balances and yields. The Specialty Banking segment's pre-tax income increased $20 million compared to the first quarter of 2024 to $118 million, largely driven by a $22 million decrease in provision for credit losses. The Corporate segment reported a pre-tax loss of $99 million for the second quarter of 2024, an improvement from the $129 million pre-tax loss in the prior quarter.
Key Strengths
One of the key strengths of First Horizon lies in its diversified business model, which includes several countercyclical revenue streams. The company's fixed-income division, FHN Financial, has consistently demonstrated its ability to generate strong fee income, contributing $92 million in the first half of 2024, a 33% increase compared to the same period in the previous year. This segment's performance has helped offset the impact of margin compression in the traditional lending business, showcasing the company's agility in navigating market fluctuations.
Furthermore, First Horizon's mortgage banking operations have also shown resilience, with mortgage banking income increasing by 73% year-over-year in the first six months of 2024. This growth can be attributed to higher origination volumes and improved gain-on-sale spreads, underscoring the company's ability to capitalize on evolving consumer preferences and market trends.
Operational Efficiency
Recognizing the importance of operational efficiency, First Horizon has implemented various initiatives to optimize its cost structure. In the third quarter of 2024, the company reported a 3% reduction in adjusted expenses compared to the prior quarter, driven by a decrease in personnel and deposit insurance expenses. These strategic efforts have allowed First Horizon to maintain a disciplined approach to cost management, further enhancing its profitability.
Asset Quality
Despite the challenges posed by the current economic landscape, First Horizon has demonstrated a steadfast commitment to asset quality. As of June 30, 2024, the company's allowance for credit losses stood at $887 million, representing 1.41% of total loans and leases. This strong credit profile is a testament to the company's prudent risk management practices and its ability to navigate potential credit headwinds.
Liquidity
Strong Liquidity Position
First Horizon maintains a robust liquidity position, ensuring its ability to meet financial obligations and navigate potential market disruptions. The company's liquidity management strategies include maintaining diverse funding sources, optimizing its securities portfolio, and maintaining access to various liquidity facilities.
Future Outlook
Looking ahead, First Horizon remains cautiously optimistic about its future prospects. The company's management has projected total revenue growth to be flat to up 2% year-over-year for the full year 2024, with the potential for upside in fee income should the interest rate environment become more favorable. This guidance remains unchanged from the previous quarter. The composition of revenue growth will depend on the Federal Reserve's actions on interest rates.
First Horizon's expense guidance also remains unchanged as the company continues to identify efficiencies to offset investments. For net charge-offs, the range has been left unchanged until more information is available on potential losses from recent weather events in the company's footprint. First Horizon continues to target a 11% CET1 ratio in the near term.
Looking ahead to 2025, First Horizon expects to drive positive pre-provision net revenue (PPNR) growth, citing opportunities to grow revenue through client growth and retention while maintaining expense discipline as drivers for improving profitability and returns.
Simultaneously, the company's focus on expense management and operational excellence is expected to drive continued improvement in profitability, with the goal of achieving a return on tangible common equity above 15% in the coming years.
Conclusion
In conclusion, First Horizon Corporation's resilient business model, diversified revenue streams, and disciplined approach to risk management have positioned the company as a formidable player in the regional banking landscape. As it navigates the evolving economic conditions, First Horizon's commitment to growth, efficiency, and shareholder value creation underscores its potential to deliver sustained success in the years ahead. The company's ability to maintain stable guidance and target positive PPNR growth in the face of economic uncertainties further demonstrates its strategic acumen and operational resilience.