First Horizon Posts Robust Earnings Amid Funding Pressures

First Horizon National ((FHN)) has held its Q1 earnings call. Read on for the main highlights of the call.

First Horizon’s latest earnings call struck a cautiously upbeat tone, with management highlighting solid profitability, loan growth, and disciplined cost control, even as they acknowledged competitive deposit pressures, commercial real estate drag, and volatile fee income. Executives framed the quarter as evidence that the bank can grow earnings and capital prudently while navigating a choppy rate and market backdrop.

Sustained Strong Profitability

First Horizon reported an adjusted return on tangible common equity of 15.1% for the quarter, marking its third straight period above the 15% threshold and more than 200 basis points higher than a year ago. Management pointed to this consistency as proof that recent strategic moves are translating into better capital efficiency and more durable profitability.

Net Interest Income and Margin Resilience

Net interest income rose 6% year over year, an impressive outcome given rate cuts over the past year that normally pressure banks’ lending spreads. The net interest margin even ticked up by 1 basis point quarter over quarter, and management expects NIM to remain in the high‑3.40% range in the near term.

Earnings and Return Metrics Improved

Earnings per share climbed to $0.53, an $0.11 increase over the prior year period, reflecting stronger core performance. Return on average assets reached 1.3%, up 19 basis points year over year, underscoring that the bank is extracting more profit from each dollar of assets on its balance sheet.

Strong C&I Loan Growth

The core commercial and industrial loan portfolio expanded by $624 million during the quarter, a sharp contrast to essentially flat growth last year. This momentum was broad‑based across regional and specialty lines, suggesting healthy business demand and a robust loan pipeline supporting future revenue.

Fee Income and Trading Upside Year-over-Year

Total fee income increased by $13 million versus the same quarter last year, despite normal seasonal slippage compared with the prior quarter. Trading activity was also a bright spot on an annual basis, with average daily revenue in the broker‑dealer business up 27% year over year to 742,000.

Expense Discipline and Efficiency Gains

Adjusted expenses, excluding deferred compensation, fell by $32 million quarter over quarter as the bank tightened cost controls. Personnel expenses dropped by $10 million and outside services by $26 million, reinforcing management’s emphasis on protecting profitability through disciplined spending.

Capital Actions and Tangible Book Growth

The company repurchased about $230 million of common stock in the quarter and still has roughly $765 million of authorization remaining, signaling confidence in its valuation. It also issued $400 million of Series H preferred stock, lifting the Tier 1 capital ratio to 11.95%, while tangible book value per share rose 9% year over year to $14.34.

Credit Performance and Reserve Strength

Credit metrics remained benign, with net charge‑offs down to $29 million, or 18 basis points of loans, and a modest $15 million provision. The allowance for credit losses stands at 1.28% of loans, which management noted is roughly seven times the bank’s average net charge‑offs over the past two years, giving a solid buffer against potential stress.

Deposit Declines and Mix Shifts

Period‑end deposits fell by $1.0 billion from the previous quarter, driven largely by outflows in brokered deposits as the bank fine‑tuned its funding mix. While this creates some near‑term liquidity movement, management framed it as a deliberate rebalancing rather than a sign of core customer weakness.

Competitive Deposit Landscape

Competition for deposits intensified as rivals offered more aggressive pricing and longer rate guarantees, forcing First Horizon to stay nimble. The average rate paid on interest‑bearing deposits actually declined to 2.28% from 2.53%, but executives warned deposit costs could tick higher in the second and third quarters if interest‑rate cuts do not materialize.

Consumer Lending Contraction

Consumer loan balances shrank by $198 million during the quarter, which management attributed to normal fluctuations and a highly competitive market. Even so, the pullback highlights that growth is being driven more by commercial relationships than by retail lending at this stage of the cycle.

CRE Headwinds to Loan Balances

Commercial real estate continues to weigh on overall loan growth as stabilized properties refinance into permanent markets and problem credits are resolved. Management expects CRE balances to eventually stabilize, but only as new pipeline activity slowly replaces loans rolling off the books.

Quarterly Fee and Trading Volatility

Fee income declined by $12 million quarter over quarter, excluding deferred compensation, with pressure across service charges, treasury management, interchange, and equipment finance. Fixed‑income revenues also slipped modestly on a sequential basis, and trading metrics showed volatility at quarter end, underscoring the lumpiness of these businesses.

Market Volatility and Capital Markets

Executives noted that heightened market swings in late March and into April weighed on FHN Financial’s fixed‑income trading activity. While average daily revenue remains higher than a year ago, the recent turbulence could cap short‑term upside in capital‑markets income.

Muted Mortgage Origination Environment

Mortgage origination and refinancing volumes remain subdued as higher 30‑year mortgage rates keep many borrowers on the sidelines. Management is not assuming a refinancing surge in its outlook and views any pickup in refi activity as potential upside rather than a base‑case expectation.

Capital Targets and CET1 Trade-offs

Following buybacks and loan growth, the bank’s common equity Tier 1 ratio stands at 10.53%, and management has set a near‑term target of 10.5%. This leaves limited room for outsized share repurchases or rapid balance‑sheet expansion without further capital moves or clearer regulatory guidance, even though leaders believe they can run below that level over time.

Guidance and Outlook

Management reaffirmed full‑year guidance calling for revenue growth of 3% to 7% with roughly flat expenses versus last year, acknowledging some quarterly noise. They expect NIM to hold in the high‑3.40% range, see an over $100 million pretax earnings opportunity from deeper client relationships, and project solid credit quality alongside a CET1 ratio anchored around 10.5% for now.

First Horizon’s earnings call painted a picture of a bank leaning on strong profitability, healthy C&I growth, and tight cost control to offset funding pressure, CRE drag, and choppy markets. For investors, the story is one of steady execution and disciplined capital use, with earnings momentum intact but dependent on navigating an increasingly competitive and volatile operating environment.