First Horizon Corporation (FHN) Credit Outlook Upgrade and Financial Performance Analysis

Introduction: Moody's Credit Outlook Upgrade Signals Strategic Strength for First Horizon#

First Horizon Corporation (FHN recently experienced a pivotal credit profile enhancement as Moody's revised its credit outlook from stable to positive, maintaining a Baa3 rating. This upgrade, announced ahead of the Q2 earnings release scheduled for July 16, 2025, underscores the bank's improving financial health, operational resilience, and strategic positioning within the regional banking sector. The timing is crucial as investors digest this development amid ongoing market volatility and shifting economic conditions.

This credit outlook upgrade is not merely symbolic; it reflects tangible progress in First Horizon's capital strength, risk management, and franchise growth. Moody's highlighted the bank's expanding deposit base, prudent lending standards, and targeted investments in technology and marketing as core drivers of this positive revision. Such factors enhance the bank's ability to absorb shocks, support loan growth, and sustain profitability.

Moody's Upgrade: Underlying Factors and Strategic Implications#

Strengthening Regional Franchise and Market Position#

First Horizon's ability to solidify its regional banking franchise is a primary pillar supporting Moody's positive outlook. The bank has strategically invested in digital transformation and customer acquisition, resulting in a growing deposit base and an expanded loan portfolio. These efforts contribute to enhanced revenue stability and improved competitive positioning within its markets.

The increased customer deposits provide a stable funding source, reducing reliance on wholesale funding and lowering liquidity risk. This development is critical in a regional banking landscape where deposit volatility can pose significant challenges.

Capital Strength and Risk Management Enhancements#

Key capital metrics bolster Moody's confidence. As of March 2025, First Horizon's Tangible Common Equity (TCE) ratio stood at 10.6%, with a Common Equity Tier 1 (CET1) ratio of 10.9%, signaling a robust capital buffer capable of withstanding economic downturns and credit losses. These ratios exceed regulatory minimums and align with rating agency expectations for a bank of its size and risk profile.

First Horizon's risk management framework has also been enhanced through tighter credit standards and diversification of its loan portfolio. These measures have helped maintain stable asset quality, with non-performing assets and loan loss reserves at prudent levels. Operational improvements, including digital process automation and cost control, have contributed to better efficiency ratios and customer satisfaction metrics.

Financial Performance and Balance Sheet Health#

Revenue and Profitability Trends#

First Horizon's latest fiscal year (2024) financials show $4.94 billion in revenue, representing a +4.71% increase from 2023's $4.71 billion. However, net income declined by -13.6% to $775 million compared to $897 million the previous year, reflecting margin pressures and increased operating expenses.

Operating income stood at $1.0 billion, down from $1.13 billion in 2023, with an operating margin contraction from 23.92% to 20.36%. The decline in net margin to 15.7% from 19.02% indicates challenges in balancing growth with cost efficiency.

Balance Sheet Strength#

First Horizon's balance sheet remains robust with total assets of $82.15 billion as of the end of 2024, slightly higher than the previous year's $81.66 billion. Total liabilities increased to $73.04 billion, with total stockholders' equity at $8.82 billion, reflecting solid capitalization.

Cash and cash equivalents totaled $2.44 billion, supporting liquidity needs, while long-term debt remained manageable at $1.2 billion. The net debt position of $2.15 billion indicates prudent leverage, with a debt-to-equity ratio of approximately 0.63x.

Cash Flow and Capital Allocation#

Operating cash flow in 2024 was $1.27 billion, slightly down from $1.3 billion in 2023, while free cash flow was $1.22 billion, reflecting disciplined capital expenditure of $44 million. Financing activities included dividends paid of $361 million and share repurchases totaling $626 million, underscoring a commitment to returning capital to shareholders despite earnings headwinds.

Valuation Metrics and Market Positioning#

First Horizon trades at a price of $21.97 per share with a market capitalization of approximately $11.14 billion. The trailing twelve months (TTM) price-to-earnings (P/E) ratio is around 14.18x, modestly above the forward P/E estimates of 12.04x for 2025 and 11.24x for 2026, suggesting market expectations of earnings recovery.

The price-to-book (P/B) ratio is 1.3x, indicating the stock is valued near its book value, consistent with regional banking peers. The dividend yield stands at 2.73%, with a payout ratio of 44.44%, reflecting a balanced approach to shareholder returns and capital retention.

What Are Analysts Watching in Upcoming Earnings?#

With the Q2 earnings announcement imminent, analysts are closely monitoring loan growth trajectories, net interest margin stability, and operational cost management. Recent quarterly earnings beats, such as the Q1 2025 EPS of $0.42 versus an estimate of $0.3987, signal resilience despite macroeconomic headwinds.

Forward-looking revenue and EPS estimates suggest moderate growth with revenue expected to reach approximately $3.35 billion and EPS around $1.70 by the end of 2025, reflecting cautious optimism amid evolving market conditions.

Table: Selected Financial Metrics (Fiscal Years 2021-2024)#

Metric	2021	2022	2023	2024
Revenue (Billion USD)	3.15	3.41	4.71	4.94
Net Income (Million USD)	999	900	897	775
Operating Income (Million USD)	1,280	1,160	1,130	1,000
Gross Profit Margin (%)	104.63%	88.68%	61.4%	59.67%
Operating Margin (%)	40.71%	33.98%	23.92%	20.36%
Net Margin (%)	31.67%	26.39%	19.02%	15.7%

Strategic Capital Management: Preferred Stock Redemption and Share Repurchases#

First Horizon's recent preferred stock redemption initiative enhances its capital structure by reducing fixed dividend obligations and boosting core equity ratios. This move aligns with Moody's positive credit outlook and demonstrates the management's commitment to financial discipline.

Simultaneously, the bank's active share repurchase program, with $626 million repurchased in 2024, reflects confidence in intrinsic valuation and a shareholder-friendly capital allocation strategy. These actions collectively improve earnings per share potential and reinforce investor confidence.

Competitive Landscape and Sector Trends#

In the regional banking sector, First Horizon stands out for its strategic focus on digital transformation and community banking. Its investments in technology support operational efficiency gains and customer experience enhancements, key differentiators in a competitive market.

Sector-wide, regional banks face challenges from interest rate volatility, regulatory scrutiny, and evolving customer preferences. First Horizon's prudent risk management and capital strength position it favorably against these headwinds, although economic sensitivities in its loan portfolio warrant ongoing vigilance.

What This Means for Investors#

Investors should consider First Horizon's upgraded credit outlook as a validation of its strategic direction and financial resilience. The bank's solid capital base, controlled risk profile, and disciplined capital returns provide a stable foundation amid an uncertain economic backdrop.

Key near-term catalysts include the upcoming Q2 earnings release and continued execution on capital management initiatives. However, investors must remain mindful of sector-specific risks, including regional economic fluctuations and competitive pressures.

Key Takeaways#

• Moody's upgrade to a positive credit outlook for First Horizon reflects improved capital strength, risk management, and franchise growth.
• Despite revenue growth, net income and margins have contracted recently, highlighting operational cost challenges.
• Robust balance sheet metrics and disciplined capital allocation, including preferred stock redemption and share repurchases, support financial stability.
• Forward earnings estimates suggest moderate growth, with analysts closely watching loan growth and net interest margins.
• First Horizon's focus on digital transformation and prudent risk management position it well within a challenging regional banking sector.

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Sources:

• Nasdaq - First Horizon Credit Ratings Outlook Upgraded to Positive by Moody's
• TradingView - First Horizon's Credit Ratings Outlook Changed to Positive by Moody's
• Seeking Alpha - First Horizon's Credit Ratings Outlook Changed to Positive from Stable by Moody's
• Monexa AI Financial Data