Overview of Financial Performance

First Horizon Corporation (FHN) is a financial holding company that offers a range of commercial, consumer, and wealth management services through its banking subsidiary, First Horizon Bank. In the second quarter of 2024, FHN reported net income available to common shareholders of $184 million, or $0.34 per diluted share. This was a decrease from the $184 million, or $0.33 per share, reported in the first quarter of 2024, and the $317 million, or $0.56 per share, reported in the second quarter of 2023.

For the first six months of 2024, FHN reported net income available to common shareholders of $368 million, or $0.67 per diluted share, compared to $560 million, or $1.00 per share, for the same period in 2023. The decrease in earnings was largely driven by higher funding costs, lower noninterest income, and an increase in provision for credit losses, partially offset by higher earning asset yields and loan growth.

Revenue and Profit Trends

Net interest income, FHN’s largest source of revenue, was $629 million in the second quarter of 2024, up $4 million from the prior quarter but down $1 million from the same quarter in 2023. The net interest margin remained stable at 3.38%. For the first six months of 2024, net interest income decreased $65 million compared to the same period in 2023, as higher funding costs were only partially offset by higher earning asset yields and loan growth.

Noninterest income decreased $8 million, or 4%, from the first quarter of 2024, primarily due to lower fixed income revenue. Compared to the second quarter of 2023, noninterest income decreased $214 million, or 54%, largely due to the absence of the $225 million gain on merger termination recorded in 2023. For the first six months of 2024, noninterest income decreased $190 million, or 33%, from the same period in 2023.

Noninterest expense decreased $15 million, or 3%, from the first quarter of 2024, driven by lower personnel and deposit insurance costs. Compared to the second quarter of 2023, noninterest expense decreased $55 million, or 10%, primarily due to the absence of the $50 million contribution to the First Horizon Foundation made in 2023. For the first six months of 2024, noninterest expense decreased $18 million, or 2%, from the same period in 2023.

The provision for credit losses was $55 million in the second quarter of 2024, up from $50 million in both the prior quarter and the same quarter in 2023. For the first six months of 2024, the provision for credit losses was $105 million, up $5 million from the same period in 2023.

Strengths and Weaknesses

One of FHN’s key strengths is its diversified business model, with a balanced mix of commercial and consumer banking, wealth management, and specialty finance activities. This diversification helps to mitigate risk and provides multiple avenues for revenue growth.

Another strength is FHN’s strong capital position, with regulatory capital ratios well above the well-capitalized thresholds. This provides a cushion to absorb potential losses and supports the company’s ability to continue lending and investing in growth opportunities.

However, FHN faces headwinds from the rising interest rate environment, which is putting pressure on its net interest margin and funding costs. The company’s reliance on net interest income as its primary revenue source makes it vulnerable to changes in interest rates.

Additionally, FHN has seen an increase in nonperforming assets, particularly in its commercial real estate portfolio. While the overall credit quality of the loan book remains strong, this trend bears close monitoring.

Outlook and Future Prospects

Looking ahead, FHN’s management expects the challenging interest rate and economic environment to persist in the near term. The company plans to focus on disciplined loan growth, managing funding costs, and optimizing its fee-based businesses to offset the pressure on net interest income.

FHN also intends to continue investing in technology and digital capabilities to enhance the customer experience and improve operational efficiency. The company’s strong capital position provides flexibility to pursue strategic initiatives and return capital to shareholders through dividends and share repurchases.

However, the uncertain macroeconomic outlook, including the potential for a recession, could lead to further deterioration in asset quality and increased credit costs. FHN will need to closely monitor these risks and adjust its strategies accordingly.

Overall, FHN remains a well-diversified financial institution with a solid foundation. While it faces near-term headwinds, the company’s management team is taking proactive steps to navigate the challenging environment and position the company for long-term success.