First Horizon Navigates Uncertainty with Resilient Earnings and Strategic Priorities

First Horizon National Corporation (FHN) delivered a mixed but largely encouraging performance in its Q1 2025 earnings call, balancing disciplined financial management with cautious optimism amid macroeconomic headwinds. While revenue fell short of expectations, the bank’s net interest margin (NIM) expansion and robust capital returns underscored its resilience. This article dissects the key takeaways, risks, and strategic moves that position FHN for potential growth in a challenging environment.

Financial Highlights: Outperforming EPS, Mixed Revenue

First Horizon reported an adjusted EPS of $0.42, a 5% beat over forecasts, driven by a 9-basis-point (bps) NIM expansion to 3.42%—its highest since late 2023. This margin growth stemmed from aggressive deposit pricing discipline, which reduced interest-bearing deposit costs by 38 bps to 2.72%. However, revenue dipped to $812 million, 1.4% below estimates, reflecting weaker loan yields and fee income.

Despite the revenue miss, management emphasized operational strengths. Share repurchases totaled $360 million in Q1, bolstering shareholder returns, while the CET1 ratio held steady at 10.9%, above the company’s target of ~11% for 2025.

Market Reaction and Valuation

The stock dipped 0.4% to $17.49 in pre-market trading but remained within its 52-week range ($13.71–$22.44). Analysts note undervaluation, with price targets ranging from $18 to $24, implying upside potential of 3% to 37%. The P/E ratio of 12.8 and 3.4% dividend yield further highlight value-oriented appeal.

Strategic Priorities: Margin Defense and Capital Allocation

CEO Brian Jordan framed FHN’s resilience around its diversified business model, which includes fee-based segments like fixed income and mortgage services. CFO Hope Domchowski detailed plans to protect NIM through deposit pricing discipline, noting an 80% beta to Fed rate cuts since mid-2024. Noninterest expenses fell $20 million sequentially due to lower third-party costs, reinforcing expense control targets.

The bank’s $360 million Q1 buybacks signal confidence in its valuation. Management hinted at potentially lowering the CET1 target to ~10.5% if conditions stabilize, freeing capital for further repurchases.

Risks and Challenges

• Economic Uncertainty: Tariffs and trade policies have slowed borrower activity in sectors like retail and manufacturing, though pipelines remain stable.
• Deposit Competition: Banks competing for deposits could pressure margins if rivals lower rates aggressively.
• Credit Risks: While net charge-offs stayed low at 19 bps, the ACL-to-loans ratio rose to 1.45% to preempt macro risks.

Outlook and Guidance

First Horizon reaffirmed 2025 targets:
- NIM: Expected to hold near current levels amid potential Fed rate cuts.
- Loan Growth: Low single-digit expansion, supported by mortgage warehouse lending and C&I pipelines.
- ROTE: Aims to exceed 15%, leveraging fee income to offset NII pressures.

Analyst and Executive Takeaways

• Analysts: Highlight FHN’s low beta (0.62) and undervaluation relative to peers.
• Management: Reiterated focus on countercyclical revenue streams and disciplined capital allocation.

Conclusion: A Resilient Play in a Volatile Landscape

First Horizon’s Q1 results demonstrate a bank prioritizing stability over growth. While revenue headwinds persist, its NIM expansion, strong capital position, and $360M buybacks position it to weather economic uncertainty.

Key data points supporting this thesis:
- Undervalued metrics: P/E of 12.8 vs. sector average of ~14.2; dividend yield 3.4%.
- Margin resilience: NIM up 9 bps despite loan yield declines.
- Credit prudence: ACL at 1.45%, covering ~9x historical charge-offs.

Investors seeking a conservative regional bank with defensive qualities may find FHN attractive. However, the stock’s performance hinges on macroeconomic clarity and the Fed’s rate path. For now, FHN’s disciplined strategy and value orientation make it a compelling option in a cautious market.

In summary, FHN’s blend of financial discipline and diversified revenue streams offers a balanced approach to navigating 2025’s challenges, warranting attention from income-focused and value-oriented investors.