First Horizon Corporation (FHN) Q2 2025 Analysis: Financial Health, Moody's Upgrade, and Strategic Capital Moves

Introduction: First Horizon's Strategic Financial Positioning Amid Regional Banking Trends#

First Horizon Corporation (FHN recently demonstrated a strategic recalibration of its capital structure amidst a modest decline in its stock price, trading at $21.86, down -1.06% intraday. This movement comes ahead of its anticipated Q2 2025 earnings announcement scheduled for July 16, reflecting market caution despite Moody's recent positive credit outlook upgrade. The bank's focus on redeeming preferred stock and managing operational efficiency signals an active effort to strengthen shareholder value and sustain competitive positioning in a dynamic regional banking sector.

Financial Performance and Capital Structure Analysis#

Revenue and Profitability Trends#

First Horizon's latest fiscal year (2024) financial results reveal a revenue increase to $4.94 billion, marking a +4.71% year-over-year growth compared to $4.71 billion in 2023. However, net income declined by -13.6% to $775 million from $897 million the previous year. This divergence is reflected in the net income ratio dropping to 15.7% from 19.02% in 2023, indicating margin compression possibly from higher operating expenses or credit costs.

Operating income similarly decreased to $1 billion in 2024 from $1.13 billion in 2023, with the operating margin narrowing from 23.92% to 20.36%. The gross profit ratio also declined to 59.67% from 61.4%. These trends suggest challenges in cost management and/or revenue mix shifts that investors should monitor closely.

Balance Sheet and Liquidity#

As of year-end 2024, First Horizon reported total assets of $82.15 billion, a slight increase from $81.66 billion in 2023. Total liabilities rose marginally to $73.04 billion, with stockholders’ equity slightly down at $8.82 billion. The bank's total debt stands at $4.59 billion, with net debt of $2.15 billion, reflecting a conservative leverage profile with a debt-to-equity ratio of approximately 0.63x.

Liquidity remains robust, supported by cash and cash equivalents of $2.44 billion and cash plus short-term investments totaling $8.94 billion. However, the current ratio is notably low at 0.13x, characteristic of banking institutions where liabilities are largely demand deposits.

Cash Flow and Capital Allocation#

Free cash flow in 2024 was strong at $1.22 billion, albeit slightly down from $1.26 billion in 2023. Operating cash flow also saw a slight decline to $1.27 billion. Capital expenditures remain modest at $44 million, indicating limited investment in fixed assets consistent with a service-oriented banking model.

Notably, First Horizon paid dividends totaling $361 million and repurchased common stock worth $626 million in 2024, reflecting a shareholder-friendly capital allocation strategy. The preferred stock redemption initiative recently announced aligns with this approach, aiming to optimize capital efficiency and potentially enhance earnings per share by reducing preferred dividend obligations.

Moody's Upgrade and Credit Outlook Implications#

Moody's Investors Service recently assigned a positive outlook to First Horizon, citing the bank's improved capital position, strategic focus on loan growth, and effective cost management. This upgrade from a stable outlook underscores confidence in FHN's ability to withstand regional economic variability and maintain credit quality.

The positive outlook is aligned with sector-wide trends reported by State Street Global Advisors highlighting moderate earnings growth and stable asset quality in regional banks. Moody's assessment also reflects First Horizon's proactive risk management and strategic capital moves, including the preferred stock redemption, which improves tangible common equity ratios.

Competitive Landscape and Market Position#

First Horizon operates in a competitive regional banking environment alongside peers such as PNC, KeyCorp, and Regions Financial. Compared to these peers, FHN's price-to-earnings ratio (P/E) of 15.18x and dividend yield of 2.74% position it as a fairly valued option within the sector.

While larger peers benefit from geographic diversification and broader product offerings, First Horizon's regional focus provides a deep understanding of local markets and customer relationships, which remains a competitive advantage in the southeastern U.S. However, exposure to regional economic fluctuations remains a risk factor.

Operational efficiency metrics, such as the efficiency ratio hovering around the sector average of 60%, suggest First Horizon is managing costs effectively but must continue to optimize to maintain profitability.

Valuation and Market Sentiment#

The market capitalization of First Horizon stands at approximately $11.1 billion, with the stock trading near its recent lows. The forward P/E ratios for the next three years trend downward, with analysts projecting a forward P/E of 11.98x in 2025 and further compression to 9.93x by 2027, indicating expectations of earnings growth and potentially improved valuation multiples.

Price-to-book ratio at 1.29x suggests the market values FHN's equity with a modest premium, reflecting confidence in the bank's asset quality and growth prospects.

The slight stock price decline preceding earnings may reflect cautious investor positioning ahead of the Q2 release and ongoing sector uncertainties, including interest rate fluctuations and deposit cost pressures.

Financial Metrics Table: Key Historical Performance#

Financial Estimates Table: Analyst Projections (2024-2027)#

What Does First Horizon's Preferred Stock Redemption Mean for Investors?#

The redemption of preferred stock is a strategic move that aims to reduce dividend obligations on preferred shares, thereby increasing net income attributable to common shareholders. This action could potentially boost earnings per share (EPS) and improve return on equity (ROE) metrics.

This initiative also signals management's confidence in the bank's capital position and willingness to optimize its capital structure. While there are short-term costs associated with the redemption, the long-term benefits include enhanced financial flexibility and shareholder value.

Key Takeaways#

• First Horizon's 2024 revenue growth of +4.71% contrasts with a net income decline of -13.6%, reflecting margin pressures.
• The bank maintains a strong capital base with total assets exceeding $82 billion and a manageable leverage ratio.
• Moody's positive outlook upgrade supports confidence in FHN's credit quality and strategic direction.
• The preferred stock redemption reflects active capital management aimed at improving EPS and shareholder returns.
• Regional focus remains a double-edged sword: providing local market expertise but exposing the bank to economic variability.
• Valuation metrics suggest the market prices FHN fairly relative to peers, with forward P/E ratios indicating expectations of earnings growth.

What This Means for Investors#

Investors should monitor First Horizon's upcoming Q2 earnings release for confirmation of revenue and earnings trends, particularly any indications of margin recovery or further pressure. The impact of preferred stock redemption on EPS and capital ratios will be critical to assess management's execution of its strategic capital initiatives.

Given Moody's upgrade and stable sector outlook, First Horizon appears positioned to navigate regional economic challenges while pursuing moderate growth. However, investors should remain attentive to broader banking sector risks, including interest rate volatility and competitive pressures.

Sources#

• First Horizon Investor Relations
• Moody's Credit Outlook Reports
• State Street Global Advisors Sector Insights
• Schwab Financials Earnings Preview

This analysis integrates verified financial data and recent sector developments to provide an authoritative perspective on First Horizon Corporation's positioning and outlook.