First Horizon's $1.2 Billion Buyback and Strategic Capital Allocation: Assessing Shareholder Value in a Volatile Banking Sector

In a banking sector marked by interest rate uncertainty and economic volatility, First Horizon Corporation (NYSE: FHN) has made a bold move to enhance shareholder value. On October 27, 2025, the regional bank announced a $1.2 billion common stock repurchase program, replacing a previous authorization with $180 million remaining, alongside a quarterly dividend of $0.15 per share, according to a MarketMinute article. This dual strategy reflects management's confidence in the company's financial health and its belief that the stock is undervalued by 14–17%, the article estimated.

Immediate Market Reaction and Strategic Rationale

The buyback program, effective immediately and set to expire on January 31, 2027, is designed to reduce the number of outstanding shares, potentially boosting earnings per share (EPS) and supporting the stock price, the MarketMinute article noted. The market responded favorably, with FHN shares rising 1.6% to $20.88 on October 24, 2025, just days before the announcement, per that coverage. This reaction underscores investor optimism about the bank's capital allocation strategy.

Management, including CEO Bryan Jordan, emphasized that the program aligns with First Horizon's broader capital optimization goals and its strong capital position. The decision to pair the buyback with a dividend-yielding 2.9% annually-further signals a balanced approach to returning capital. Analysts suggest this could bridge a perceived valuation gap, particularly as the bank's recent financial performance has outpaced expectations.

Financial Health and Capital Position

First Horizon's Q3 2025 results provide a solid foundation for its capital return strategy. The bank reported revenue of $889 million, exceeding analyst estimates by 5.6%, and non-GAAP profit of $0.51 per share, 14.6% above consensus, according to Q3 2025 results. These figures were driven by a 7.5% year-on-year increase in net interest income and a 3.6% net interest margin, the indexbox post reported. Additionally, the company's core equity tier 1 (CET1) capital ratio stood at 11%, a level that supports aggressive buybacks while maintaining regulatory buffers.

However, the efficiency ratio of 61.9%-higher than the estimated 59.3%-suggests room for operational improvements, the indexbox article noted. Despite this, the bank's ability to repurchase $190 million of stock in Q3 alone, with $300 million remaining in its authorization, highlights its flexibility in capital deployment.

Peer Comparisons and Industry Trends

First Horizon's strategy mirrors broader trends among regional banks, which are increasingly prioritizing shareholder returns. For instance, Fifth Third Bancorp (FITB) authorized a $100 million buyback (15% of its shares), while Citizens Financial Group (CFG) allocated $1.5 billion (8.3% of its market cap), as detailed in a FinancialContent roundup. These moves are underpinned by strong CET1 ratios, with Cathay General Bancorp (CATY) at 13.6% and RBB Bancorp (RBB) at 6.2%, the same roundup observed. First Horizon's 11% CET1 ratio places it in a favorable position to sustain its buyback program without compromising stability.

The dividend component also aligns with industry practices. Four of the aforementioned banks offer yields of 3% or higher, reinforcing the sector's focus on capital returns. For First Horizon, the 2.9% yield-combined with its buyback-positions it competitively in a market where investors increasingly prioritize income and growth.

Historical Effectiveness of Buybacks in Banking

Historical data suggests that share repurchases can enhance shareholder value, particularly in volatile markets. A study of U.S. and European banks from 2008 to 2020 found that buybacks significantly improved return on equity (ROE) and return on assets (ROA) in the year following the transactions, according to a ScienceDirect study. This aligns with the "free cash flow hypothesis," which posits that returning excess capital to shareholders through buybacks mitigates agency conflicts and boosts value in mature industries like banking, the study concluded.

Moreover, buybacks offer flexibility compared to dividends. Unlike dividend cuts, which often trigger market distress signals, reductions in buyback programs can be adjusted without similar repercussions. This adaptability is crucial in a sector facing macroeconomic headwinds, such as interest rate volatility and credit risk.

Long-Term Implications and Risks

While First Horizon's strategy appears well-positioned for near-term gains, long-term success hinges on its ability to sustain profitability and navigate sector-wide challenges. The bank's focus on relationship-driven banking and technology investments-such as growth in its mortgage warehouse business-provides a growth foundation, the indexbox coverage noted. However, the efficiency ratio and potential macroeconomic downturns could pose risks.

Historically, banks that balance buybacks with disciplined growth have outperformed peers. For example, North American banks that accelerated capital returns during 2014–2018 delivered superior total shareholder returns (TSR), as highlighted in a BCG analysis. First Horizon's approach, if executed prudently, could mirror this success.

Conclusion

First Horizon's $1.2 billion buyback and dividend declaration represent a strategic response to a volatile banking sector. By leveraging its strong capital position and aligning with industry trends, the bank aims to enhance shareholder value through both immediate price support and long-term EPS growth. While risks such as operational efficiency and macroeconomic shifts remain, historical precedents suggest that disciplined buybacks can drive sustainable value creation. For investors, the key will be monitoring the bank's ability to balance capital returns with growth and adaptability in an uncertain environment.