First Horizon Corporation Q2 2025 Earnings Beat and Strategic Capital Moves Analysis

First Horizon Corporation (FHN) Q2 2025 Earnings Beat: Strategic Resilience and Financial Performance#

First Horizon Corporation delivered a notable earnings beat in Q2 2025, reporting an adjusted earnings per share (EPS) of $0.45, surpassing the consensus estimate of $0.42. This marks the fourth consecutive quarter of EPS outperformance, underscoring the company’s operational efficiency and profitable growth amid evolving economic conditions. The net income growth and pre-provision net revenue (PPNR) expansion to $339 million reflect robust core banking activities and disciplined expense control.

The bank’s net interest income (NII) was a key driver, increasing by approximately $10 million quarter-over-quarter, supported by an expanding loan portfolio, particularly in mortgage warehouse lending and commercial & industrial (C&I) loans. This growth in NII was achieved despite a slight compression in net interest margin (NIM) to 3.40%, down 2 basis points sequentially, mainly due to a 4 basis point increase in deposit costs. First Horizon’s ability to maintain a stable NIM amid deposit pricing pressures illustrates effective funding and loan yield management.

Earnings and Financial Highlights#

EPS and Net Income Performance#

The EPS of $0.45 exceeded analyst estimates by +7.14%, reflecting solid profitability improvement from Q1 2025’s $0.41 and Q2 2024’s $0.42. Although the exact net income figure for Q2 2025 was not disclosed, the EPS beat combined with an increased PPNR indicates strong net income growth. This improvement stems from the strategic focus on higher-yielding loan segments and operational efficiencies.

Loan Growth and Revenue Drivers#

Loan growth was a critical factor, with a sequential increase of 2%, driven by mortgage warehouse and C&I lending segments. The loan portfolio expansion enhances earning assets, contributing to the net interest income increase. Fee income experienced a slight sequential decline of $3 million, attributable primarily to pressures in fixed income advisory and asset management revenues, but this was offset by NII growth and controlled expenses.

Expense Management#

First Horizon maintained disciplined expense control with total non-interest expenses rising modestly by $4 million excluding deferred compensation. Investments in technology and marketing continued, but expense growth remained within management’s guidance of flat to 2% increase for 2025, reinforcing operational discipline.

Capital Structure and Preferred Stock Redemption#

Strategic Redemption of Series B Preferred Stock#

A significant strategic development is First Horizon’s announcement to redeem all outstanding Series B Preferred Stock on August 1, 2025, at $25.00 per share with accrued dividends paid separately. This move aims to streamline the capital structure by reducing fixed dividend obligations and lowering the overall cost of capital, thus enhancing financial flexibility.

Impact on Capital Ratios and Leverage#

While the exact immediate impact on capital ratios was not disclosed, such redemption typically improves Common Equity Tier 1 (CET1) ratios by removing preferred stock from the capital base. As of Q2 2025, FHN’s CET1 ratio was approximately 11.0%, within its target range, and is expected to strengthen post-redemption. Additionally, eliminating preferred stock reduces leverage ratios, providing more room for future growth and capital deployment.

Credit Quality Trends and Outlook#

Stable Credit Metrics#

First Horizon’s credit quality remained stable in Q2 2025. The net charge-off (NCO) ratio was 22 basis points, with net charge-offs totaling $34 million, consistent with prior periods. Non-performing loans (NPLs) decreased by 4 basis points sequentially, signaling improving asset quality. The provision for credit losses was $30 million, down $10 million from the previous quarter, reflecting confidence in the loan portfolio’s health.

Management Commentary#

CEO D. Bryan Jordan emphasized borrower resilience and prudent underwriting practices amid ongoing economic uncertainties. The allowance for credit losses to loans ratio stood at 1.42%, slightly lower due to loan mix shifts but within healthy ranges. Management’s outlook remains cautiously optimistic for stable credit quality going forward.

Valuation and Market Sentiment#

Analyst Sentiment and Price Targets#

Post-Q2 earnings, analyst sentiment remains predominantly positive with a "Moderate Buy" consensus. The median 12-month price target ranges from $23.00 to $23.75, implying upside potential from the current price of approximately $21.61. Eleven analysts rate FHN as a "Buy" or "Strong Buy," while six recommend holding, reflecting confidence in the bank’s strategic direction.

Valuation Metrics#

First Horizon’s valuation is attractive relative to peers, with a price-to-earnings (P/E) ratio around 13.93x (TTM), below competitors such as Pinnacle Financial (15.91x) and JPMorgan Chase (18.4x). The price-to-book (P/B) ratio stands at 1.28x, consistent with historical averages and indicating relative undervaluation.

The forward P/E ratios are expected to decline from 14.29x in 2024 to 9.73x by 2027, reflecting anticipated earnings growth and improving profitability.

Financial Performance Summary Table#

Note: pp = percentage points

Balance Sheet and Cash Flow Highlights#

First Horizon reported total assets of $82.15 billion as of December 31, 2024, a slight increase from $81.66 billion in 2023, reflecting steady balance sheet growth. Total liabilities rose to $73.04 billion, with total stockholders' equity slightly decreasing to $8.82 billion.

The company maintains a low current ratio of 0.13x, typical for banks, with a debt-to-equity ratio of approximately 0.63x, suggesting a moderate leverage profile. Net debt increased to $2.15 billion in 2024 from $1.36 billion in 2023, partly due to strategic capital moves.

Free cash flow was robust at $1.22 billion in 2024, supported by net cash provided by operating activities of $1.27 billion and modest capital expenditures of $44 million. Dividends paid totaled $361 million, with common stock repurchases at $626 million, indicating active capital return policies.

Competitive Landscape and Sector Context#

First Horizon operates primarily in 12 states, offering retail and commercial banking, mortgage lending, wealth management, and investment banking services. Its diversified business model helps mitigate regional economic risks and supports stable revenue streams.

Compared to peers such as PNC and Fifth Third Bancorp, FHN maintains a competitive NIM of 3.40%, higher than PNC’s 2.80% and Fifth Third’s 3.03% (Q1 2025 data). The bank’s funding strategy, including deployment of brokered CDs and growth in non-interest-bearing deposits, contributes to this competitive edge.

What Does This Mean for Investors?#

• Earnings resilience: Consistent EPS beats and net income growth driven by loan portfolio expansion and operational efficiency.
• Capital structure optimization: Preferred stock redemption enhances financial flexibility and reduces cost of capital.
• Stable credit quality: Low NCOs and improving asset quality support confidence in loan portfolio health.
• Attractive valuation: Relative undervaluation versus peers with a positive analyst consensus and upside price target.

Investors should monitor the impact of capital structure changes on capital ratios and the bank’s ability to sustain loan growth amid evolving macroeconomic conditions.

Key Financial Metrics Comparison Table#

Sources#

• First Horizon Earnings Call Transcript
• AInvest News on Horizon Q2 Earnings
• Fool.com Earnings Transcript
• Mitrade Insights
• GuruFocus News on Preferred Stock Redemption
• Taurigo Article on Preferred Stock
• Stocktitan News