FHN Q1 Deep Dive: Margin Expansion and Deposit Discipline Amid Economic Uncertainty

Regional banking company First Horizon (NYSE:FHN) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $812 million. Its non-GAAP profit of $0.42 per share was 5.3% above analysts’ consensus estimates.

Is now the time to buy FHN? Find out in our full research report (it’s free).

StockStory’s Take

First Horizon’s first quarter results were met with a negative market reaction, as the company’s revenue came in below Wall Street expectations while non-GAAP earnings per share exceeded consensus. Management pointed to ongoing economic uncertainty—particularly related to tariffs and shifting trade policies—which contributed to a cautious stance among borrowers and investors. CEO Bryan Jordan cited “heightened macroeconomic uncertainty” as a key factor, highlighting the company’s focus on deposit pricing discipline and expense management to maintain steady returns. CFO Hope Dmuchowski emphasized that credit performance remained solid, with net charge-offs holding steady and reserve levels increased slightly to reflect the uncertain environment.

Looking forward, First Horizon’s management maintained their full-year guidance, expressing confidence in the company’s ability to adapt to evolving interest rate scenarios and economic headwinds. The company plans to leverage its diversified business model to offset potential margin pressures, with countercyclical businesses such as mortgage and fixed income expected to provide a natural hedge. Management acknowledged ongoing uncertainty, but as Dmuchowski stated, “We still expect our total revenue growth to fall within the provided ranges,” citing the resilience of their balanced approach and focus on both organic growth and expense control.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strong deposit management, solid expense control, and steady credit quality, while acknowledging challenges from volatility and borrower caution.

• Deposit pricing discipline: First Horizon reduced average interest-bearing deposit costs, helping to expand net interest margin despite lower loan yields. Management highlighted successful retention of promotional deposits and a high rate of client engagement to manage deposit pricing.

• Expense management focus: The company’s adjusted expenses declined, driven by reductions in outside services following the completion of major technology projects. Dmuchowski noted flexibility in expense management, suggesting the company could adjust spending in response to revenue trends or ongoing uncertainty.

• Countercyclical revenue streams: Volatility in fixed income markets reduced some trading revenues, but increases in other fee-based businesses partially offset these declines. Management views the countercyclical nature of these segments as a hedge against shifts in net interest income.

• Credit quality stability: Credit metrics remained strong, with net charge-offs holding steady and reserves increased slightly to account for greater macroeconomic risk. Chief Credit Officer Thomas Hung emphasized that the bank’s conservative approach positioned it well for a range of economic outcomes.

• Loan and deposit trends: While commercial real estate loan balances declined due to paydowns and borrower caution, commercial and industrial lending showed signs of stabilization. Seasonal campaigns and new-to-bank offers are expected to help attract new deposits in coming quarters.

Drivers of Future Performance

First Horizon’s management sees macroeconomic uncertainty, interest rate movements, and the strength of its countercyclical businesses as the main factors shaping 2025 performance.

• Interest rate environment: The company’s outlook assumes a range of rate-cut scenarios, with management noting that fewer rate cuts would benefit net interest income, while more cuts would shift revenue toward fee-based businesses such as mortgage and fixed income. The company’s asset-sensitive balance sheet is partially hedged by these countercyclical businesses.

• Expense flexibility: Management signaled its ability to adjust expenses, particularly in variable compensation and outside services, to maintain profitability even if loan growth or certain fee revenues fall short. Ongoing technology and marketing investments are expected to be balanced with cost control measures as needed.

• Deposit growth efforts: Seasonal promotional campaigns and targeted new-to-bank offers are aimed at attracting new customer deposits and reducing deposit costs. Management believes these initiatives, combined with stable core deposit retention, will support funding needs and help manage overall interest expense.

Catalysts in Upcoming Quarters

Over the next few quarters, the StockStory team will be monitoring (1) the effectiveness of deposit campaigns and their impact on core funding costs, (2) the company’s ability to maintain credit quality as macroeconomic uncertainty persists, and (3) the trajectory of loan growth—particularly in commercial and industrial lending as well as the mortgage warehouse. Execution on cost control and adaptability to interest rate changes will be important additional markers.

First Horizon currently trades at $20.48, up from $17.58 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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