8-K: First Horizon Reports Strong Second Quarter 2025 Earnings with Increased Net Income and EPS

First Horizon Corporation announced strong second quarter 2025 results, reporting net income available to common shareholders of $233 million, or $0.45 per share, driven by loan portfolio growth and disciplined expense management.

Summary

• Net income available to common shareholders (NIAC) was $233 million, or $0.45 per diluted share, compared to $213 million, or $0.41 per diluted share, in the first quarter of 2025.
• Adjusted NIAC was $229 million, or $0.45 per diluted share, up from $217 million, or $0.42 per diluted share, in the prior quarter.
• Net interest income (FTE) increased by $10 million to $645 million, primarily driven by loan portfolio growth.
• Net interest margin (NIM) decreased by 2 basis points to 3.40%, influenced by higher deposit costs from increased brokered deposit balances.
• Noninterest income increased by $7 million to $189 million, with adjusted noninterest income also up $7 million due to higher deferred compensation income.
• Noninterest expense increased by $3 million to $491 million; adjusted noninterest expense rose $14 million to $495 million, including $9 million in higher deferred compensation.
• Average loan and lease balances grew by $906 million to $62.6 billion, with period-end balances increasing $1.0 billion to $63.3 billion.
• Average deposits increased by $0.2 billion to $64.7 billion, and period-end deposits rose $1.4 billion to $65.6 billion, mainly due to brokered deposits.
• Provision for credit losses decreased by $10 million to $30 million.
• Net charge-offs were $34 million, or 22 basis points, up from $29 million, or 19 basis points, in the prior quarter.
• Nonperforming loans decreased by $17 million to $593 million.
• The Allowance for Credit Losses (ACL) to loans ratio decreased to 1.42% from 1.45% in the prior quarter.
• The Common Equity Tier 1 (CET1) ratio increased by 7 basis points to 11.0%.
• Tangible book value per common share (TBVPS) increased by $0.40 to $13.57.

Sentiment

Score: 8

Explanation: First Horizon delivered strong second-quarter results with significant increases in net income and EPS, robust loan and deposit growth, and improved capital ratios, alongside a positive update to expense guidance, indicating solid operational performance despite some NIM compression and fixed income headwinds.

Positives

• Net income available to common shareholders increased to $233 million ($0.45 EPS) from $213 million ($0.41 EPS) in Q1 2025.
• Adjusted net income available to common shareholders increased to $229 million ($0.45 EPS) from $217 million ($0.42 EPS) in Q1 2025.
• Net interest income (FTE) increased $10 million to $645 million, driven by loan portfolio growth.
• Noninterest income increased $7 million to $189 million.
• Average loan and lease balances increased $906 million to $62.6 billion, with period-end balances up $1.0 billion to $63.3 billion.
• Loans to mortgage companies (LMC) showed $689 million period-end growth due to seasonal trends and market share gains.
• Other Commercial & Industrial (C&I) balances increased by $316 million.
• Loan yields increased 3 basis points to 5.92% due to the elevated LMC portfolio.
• Period-end deposits increased $1.4 billion to $65.6 billion, primarily funded by brokered deposits.
• Provision for credit losses decreased $10 million to $30 million.
• Nonperforming loans decreased $17 million to $593 million.
• Allowance for Credit Losses (ACL) to loans ratio decreased to 1.42%, reflecting higher LMC balances (a portfolio with lower losses) and positive net risk grade migration.
• Common Equity Tier 1 (CET1) ratio increased 7 basis points to 11.0%.
• Return on average common equity (ROCE) increased 84 basis points to 11.1%.
• Return on average tangible common equity (ROTCE) increased 104 basis points to 13.8%. Adjusted ROTCE increased 57 basis points to 13.6%.
• Efficiency ratio improved by 86 basis points to 59.20%.
• Tangible book value per common share increased $0.40 to $13.57.
• Maintained approximately 95% retention of ~$23 billion in promotional deposit or CD repricing events during the quarter, while reducing costs by 6bps on these balances.
• Net charge-offs remained in line with expected levels, reflecting strong credit performance and underwriting standards.
• Adjusted expense guidance (excluding deferred compensation) for FY25 was updated to Flat Up 2%, a reduction from the prior guidance of Up 2% 4%, indicating strong expense management.

Negatives

• Net interest margin (NIM) decreased 2 basis points to 3.40%, driven by higher deposit costs associated with increased brokered deposit balances.
• Interest-bearing deposit cost increased 4 basis points to 2.76%.
• Fixed income revenue declined $7 million from the prior quarter, with average daily revenue (ADR) decreasing 6% to $550k.
• Adjusted noninterest expense increased $14 million, including $9 million in higher deferred compensation.
• Net charge-offs increased to $34 million or 22 basis points from $29 million or 19 basis points in the prior quarter.
• Commercial real estate (CRE) balances declined $203 million.

Risks

• Forward-looking statements are inherently subject to significant business, operational, economic, and competitive uncertainties and contingencies, many of which are beyond the company's control.
• Future business decisions and actions, including acquisitions and divestitures, are subject to change and could cause actual future results and outcomes to differ materially from those contemplated or implied.
• Actual results could differ and expectations could change, possibly materially, due to factors mentioned in the 8-K, 10-K, and 10-Q filings, and other unlisted factors.
• Macroeconomic conditions evolving could impact net charge-offs, necessitating a maintained range of possibilities.
• Variability in deferred compensation may impact growth rates in noninterest income and noninterest expense, though it should have an offsetting and immaterial impact on pretax income.

Future Outlook

The 2025 outlook projects Adjusted Revenue (excluding deferred compensation) to be flat to up 4% and Adjusted Expense (excluding deferred compensation) to be flat to up 2%, an improvement from previous guidance. Net Charge-Offs are expected to range between 0.15% and 0.25%, with the tax rate between 21% and 23%. The CET1 ratio is targeted between 10.5% and 11.0%. The company aims for an intermediate-term Return on Average Tangible Common Equity (ROTCE) of 15%+ and plans strategic capital management to opportunistically deploy excess capital, potentially lowering the CET1 ratio to the 10% 10.5% range.

Management Comments

• "We are pleased with our strong performance this quarter, underscoring our unwavering commitment to safety and soundness, profitability and growth. Our results in the second quarter and first half of the year highlight the strengths of our business model and our geographic footprint."
• "Our dedication to our clients and our deep expertise across our business lines ensure that we consistently deliver long-term value and strong outcomes for our shareholders, clients, communities and associates, regardless of economic conditions."

Industry Context

First Horizon operates as a leading regional financial services company concentrated in the southern U.S. The diversified business model, which includes counter-cyclical segments like fixed income and mortgage warehouse lending, provides a strategic counterbalance to the company's asset-sensitive balance sheet, particularly during periods of declining interest rates. The fixed income business serves a broad institutional client base, including a significant portion of U.S. banks. The company's loan portfolio is well-diversified across commercial, real estate, and consumer segments, with a strong presence in high-growth southeastern markets. The investment portfolio is managed prudently, with a high proportion of U.S. government or agency-backed securities, supporting liquidity and interest rate risk management.

Comparison to Industry Standards

• The net charge-off ratio of 0.22% for Q2 2025 is significantly lower than the average net charge-off percentage of the BKX Index (a banking index excluding trust and investment banks), which was 0.57% for Q2 2024, Q3 2024, Q4 2024, and Q1 2025, indicating superior credit quality relative to peers.
• The presentation of regulatory measures like Common Equity Tier 1 (CET1) and Tier 1 capital ratios provides a meaningful basis for comparability to other financial institutions subject to the same U.S. banking regulations, demonstrating the company's capital adequacy in line with industry standards.

Stakeholder Impact

• Shareholders: Benefited from increased net income, EPS, ROTCE, and tangible book value per share, along with continued common dividends of $0.15 per share, indicating positive returns and value creation.
• Clients: Experienced continued engagement and service delivery, reflected in increased loan and deposit balances.
• Associates: Strategic personnel investments and stable full-time equivalent associates suggest a focus on human capital and employee well-being.
• Communities: The CEO's comments highlight the company's dedication to delivering strong outcomes for communities.

Next Steps

• Maintain ongoing safety and soundness.
• Continue profitable organic deployment into the loan portfolio.
• Opportunistically deploy excess capital.
• Work towards achieving an intermediate term Return on Average Tangible Common Equity (ROTCE) of 15%+.
• Drive loan and deposit growth within the attractive geographic footprint.
• Maintain continuous focus on efficiency and profitability, including pursuing over $100 million in Pre-Provision Net Revenue (PPNR) opportunities in the existing book of business.
• Maintain a prudent credit culture that minimizes losses and maximizes long-term returns.

Key Dates

Recommendation

Keywords

First Horizon, FHN, earnings, financial results, banking, regional bank, net income, EPS, loans, deposits, net interest income, net interest margin, noninterest income, noninterest expense, asset quality, capital ratios, CET1, tangible book value, credit losses, mortgage banking, fixed income, commercial real estate, C&I loans, SEC filing, 8-K