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

Introduction#

First Horizon Corporation (FHN recently experienced a notable shift in credit rating outlook as Moody's Investors Service upgraded its stance from stable to positive while affirming the Baa3 long-term issuer rating. This development underscores the bank's strengthening position in the competitive regional banking landscape, particularly in the Southeast U.S. The upgrade coincides with the company's ongoing strategic investments and solid financial footing, positioning it for sustainable growth despite broader economic challenges.

Moody's Upgrade: Implications and Rationale#

Moody's decision to raise First Horizon's outlook to positive reflects increased confidence in the bank's regional franchise expansion and operational resilience. The bank's tangible common equity (TCE) ratio of 10.6% and Common Equity Tier 1 (CET1) ratio of 10.9% as of March 2025 are key capital metrics cited in the upgrade, signaling a robust capital buffer against credit and market risks. The improved deposit franchise, driven by strategic marketing and technology investments, enhances funding stability and loan growth potential.

Such an upgrade typically translates to a lower cost of capital and greater financial flexibility, which can accelerate asset quality improvements and support new lending initiatives. Moody's positive outlook also suggests enhanced investor confidence, potentially impacting First Horizon's stock valuation positively ahead of its Q2 earnings announcement scheduled for July 16, 2025.

Financial Performance Overview#

Revenue and Profitability Trends#

First Horizon's latest fiscal year (2024) revenue stood at $4.94 billion, marking a +4.71% increase from 2023's $4.71 billion. Despite this top-line growth, net income declined by -13.6% to $775 million in 2024 from $897 million in 2023, reflecting margin pressures and higher operating expenses. The net income margin contracted to 15.7% in 2024 from 19.02% in 2023.

Operating income also decreased to $1 billion in 2024, down from $1.13 billion in 2023, with an operating margin reduction to 20.36%. The bank's gross profit margin declined to 59.67% in 2024 compared to 61.4% the prior year, indicating some compression in cost efficiency.

Fiscal Year	Revenue (Billion USD)	Net Income (Million USD)	Operating Income (Million USD)	Net Margin (%)	Operating Margin (%)
2024	4.94	775	1,000	15.7	20.36
2023	4.71	897	1,130	19.02	23.92

Balance Sheet and Liquidity#

First Horizon's total assets were approximately $82.15 billion at the end of 2024, slightly up from $81.66 billion in 2023. The company's total liabilities increased to $73.04 billion, with total stockholders' equity slightly decreasing to $8.82 billion. Notably, the bank's net debt rose to $2.15 billion, reflecting changes in debt and cash management.

The current ratio remains notably low at 0.13x, typical for banks where deposits fund liabilities rather than traditional working capital management. The debt-to-equity ratio is modest at approximately 0.63x, indicating a balanced capital structure.

Metric	2024 Value	2023 Value
Total Assets (Billion USD)	82.15	81.66
Total Liabilities (Billion USD)	73.04	72.37
Stockholders' Equity (Billion USD)	8.82	9.00
Net Debt (Billion USD)	2.15	1.36
Debt-to-Equity Ratio	0.63x	0.41x

Cash Flow Dynamics#

Operating cash flow remains robust, with net cash provided by operating activities of $1.27 billion in 2024, slightly down from $1.3 billion in 2023. Free cash flow also decreased marginally to $1.22 billion. Capital expenditures were restrained at $44 million, consistent with the bank's focus on technology and infrastructure investments.

The bank returned capital to shareholders through dividends totaling $361 million and repurchased stock worth $626 million in 2024, indicating a commitment to shareholder returns despite a slight dip in earnings.

Competitive and Market Positioning#

First Horizon's strategic emphasis on the Southeast U.S. market has strengthened its deposit base and loan portfolio in a region with robust economic growth. This regional focus differentiates FHN from national banks by allowing deeper customer relationships and localized expertise. Moody's upgrade acknowledges this competitive positioning, highlighting the bank's operational improvements and market share gains.

The bank's investments in technology and marketing have enhanced operational efficiencies and customer engagement, critical factors in the increasingly digital banking environment. These initiatives support loan growth and deposit stability, which are vital for sustaining margins amid competitive pressures and economic uncertainty.

Stock Performance and Investor Sentiment#

Following Moody's positive outlook announcement, First Horizon's stock price modestly appreciated to $21.20, representing a +0.76% intraday gain. The stock trades at a price-to-earnings (P/E) ratio of approximately 14.72x, slightly above the trailing twelve months (TTM) P/E of 13.68x, reflecting cautious optimism among investors.

The dividend yield remains attractive at 2.83%, supported by a payout ratio of 44.44%, signaling sustainable dividend distributions aligned with earnings. The bank's capital return strategy, combining dividends and stock buybacks, is likely to continue supporting shareholder value.

What Does Moody's Upgrade Mean for Investors?#

Why the Positive Outlook Matters#

Moody's upgrade to a positive outlook signals enhanced creditworthiness and operational strength for First Horizon, reducing perceived risks and potentially lowering borrowing costs. This credit improvement facilitates greater financial flexibility, enabling the bank to pursue growth opportunities and improve asset quality.

Key Financial Strengths Backing the Upgrade#

• Capital Adequacy: TCE ratio at 10.6% and CET1 ratio at 10.9% provide strong buffers.
• Regional Franchise: Expanding presence in the Southeast drives deposit and loan growth.
• Operational Efficiency: Technology investments enhance customer service and cost management.

Potential Risks and Considerations#

While the outlook is positive, investors should monitor net income margin pressures and the bank's ability to sustain earnings growth amid competitive and macroeconomic challenges. The modest decline in net income and operating income margins in 2024 underscores these dynamics.

Key Takeaways for Investors#

• Moody's upgrade reflects confidence in First Horizon's strategic direction and financial resilience.
• Revenue growth remains steady, but margin compression poses challenges.
• Strong capital ratios and disciplined capital allocation support future growth and shareholder returns.
• The Southeast regional focus provides competitive advantages amid evolving banking landscapes.
• The upcoming Q2 earnings report will be critical in assessing the company's operational execution and growth trajectory.

Conclusion#

First Horizon Corporation's recent credit rating outlook upgrade by Moody's marks a pivotal moment, affirming the bank's strengthened capital position, regional franchise expansion, and operational improvements. While financial metrics reveal some margin pressures, the bank's disciplined capital management, sustainable dividend policy, and strategic investments provide a solid foundation for future growth.

Investors should watch the forthcoming Q2 earnings announcement closely, as it will offer further clarity on how First Horizon navigates competitive pressures and economic conditions. The positive credit outlook, combined with steady revenue growth and robust capital buffers, positions First Horizon as a resilient player in the regional banking sector.

Sources#

• Seeking Alpha: First Horizon's Credit Ratings Outlook Changed to Positive from Stable by Moody's
• CBonds News 1
• CBonds News 2
• Nasdaq: First Horizons Credit Ratings Outlook Upgraded to Positive by Moody's
• TradingView: First Horizon's Credit Ratings Outlook Upgraded to Positive by Moody's