First Horizon's Q1 Earnings Show Resilience Amid Revenue Challenges

First Horizon Corporation (FHN) reported mixed results for its first quarter of 2025, with adjusted earnings rising to $0.42 per share but total revenue slipping 0.9% year-over-year to $1.2 billion. The results underscored the bank’s ability to navigate a challenging interest rate environment through disciplined cost management and strategic shifts in its loan portfolio, even as top-line growth faced headwinds.

Revenue Decline: Structural Pressures and Strategic Choices

First Horizon’s revenue shortfall stemmed from a combination of cyclical and structural factors. Net interest income—the core driver of banking profitability—dropped 0.9% year-over-year to $812 million, pressured by two fewer days in Q1 compared to the prior year and a 9 basis-point decline in loan yields. The bank actively reduced high-cost deposits, including $50 million in brokered deposits, to improve margins. While this tightened deposit costs, it also constrained growth in interest-bearing liabilities.

Non-interest income remained flat at $23 million (excluding one-time items), as gains in mortgage banking (up $1.8 million due to lower rate-induced lock volumes) were offset by fewer days in the quarter and weaker swap fee revenue.

Adjusted Earnings Growth: Margin Resilience and Cost Discipline

Despite the revenue miss, adjusted EPS rose sequentially to $0.42, fueled by a 5 basis-point expansion in net interest margin (NIM) to 3.55%. This improvement reflected strategic deposit management: the cost of interest-bearing deposits fell 24 basis points as the bank repriced $600 million in CDs in Q2 and $775 million in CDs later this year at lower rates.

Cost discipline also played a role. Non-interest expenses grew modestly to $79.1 million (adjusted), driven by seasonal payroll taxes and compensation, but remained under control. Management expects Q2 expenses to stabilize at $66–68 million, supporting margin stability.

The bank’s credit quality remained robust, with net charge-offs at a low 0.14% annualized and the allowance for loan losses dropping to $151 million as loan mix shifted toward lower-risk commercial and industrial (C&I) loans.

Strategic Momentum and Risks Ahead

First Horizon’s $1.2 billion merger with Southern States Bank, expected to close in Q3 2025, promises to enhance its Southeastern footprint and diversify revenue streams. The deal is projected to improve NIMs and generate $13 million in annual synergies.

However, risks persist. The stock dipped 0.63% post-earnings on revenue concerns, though it has climbed 20.7% year-to-date. Management emphasized undervaluation, repurchasing $10 million in shares in Q1.

Conclusion: A Cautionary Optimism

First Horizon’s Q1 results reflect a bank prioritizing profitability over growth in a tough macroeconomic environment. While revenue challenges highlight lingering headwinds from deposit costs and loan yield compression, the margin expansion and credit discipline demonstrate operational resilience.

The Southern States merger and geographic expansion into markets like Asheville and Tuscaloosa position FHN for sustainable growth, assuming the economy avoids a severe downturn. Investors should monitor NIM trends, deposit cost management, and merger execution. With a tangible common equity ratio of 10.5% and CET1 at 12.8%, the bank is well-capitalized to navigate uncertainty.

For now, First Horizon’s results suggest a cautious path forward: earnings growth is achievable, but revenue recovery may depend on broader economic stability and the Federal Reserve’s next moves on interest rates.