First Horizon (FHN) Q4 2025 earnings review
Solid Finish to FY25: Earnings Growth Accelerates, Credit Remains Benign
First Horizon closed 2025 with strong momentum, delivering $0.52 in Adjusted EPS (+2% QoQ, +21% YoY) and a 15% Adjusted ROTCE. Full-year Adjusted NIAC rose 15% to $968M. The bank successfully navigated a falling rate environment; while loan yields dropped 23 bps due to two Fed cuts, aggressive deposit repricing (cost down 25 bps) limited Net Interest Margin (NIM) compression to just 4 bps. Notably, the bank recorded zero provision for credit losses, signaling confidence in asset quality despite a slight uptick in NCOs. Capital deployment was aggressive, with CET1 dropping to 10.64% driven by loan growth and $335M in buybacks.
🐂 Bull Case
After periods of stagnation, Average Loans grew 1% QoQ and Period-End Loans grew 2% ($1.1B). Growth was driven by High-Yielding Loans to Mortgage Companies (+$776M) and Commercial & Industrial (C&I +$727M), signaling revived borrower demand.
Management demonstrated exceptional pricing power. As the Fed cut rates, FHN lowered interest-bearing deposit costs by 25 bps (to 2.53%) almost in lockstep with loan yield declines, defending the Net Interest Margin.
🐻 Bear Case
Net Interest Margin compressed 4 bps to 3.51%. With 50%+ of the loan portfolio indexed to short-term rates, the bank remains asset-sensitive. Continued aggressive Fed cuts could pressure NIM if deposit beta lags or hits a floor.
CET1 ratio declined 32 bps QoQ to 10.64%, drifting toward the lower end of peer ranges. While intentional (buybacks + growth), it reduces the buffer for potential economic shocks or M&A optionality compared to the 11.2% levels seen a year ago.
⚖️ Verdict: 🟢
Bullish. First Horizon is executing a 'soft landing' scenario perfectly: reviving loan growth, controlling expenses, and maintaining pristine credit quality (zero provision) while aggressively returning capital. The ability to manage deposit costs down alongside rate cuts removes the biggest overhang on the stock.
Key Themes
Loans to Mortgage Companies (LMC) Powering Growth
LMC has become a critical swing factor for balance sheet growth. Balances surged $776M (+20% QoQ) in Q4, driving the majority of the total loan growth. This segment allows FHN to deploy liquidity into higher-yielding, short-duration assets that naturally hedge against rate cuts.
Deposit Cost Repricing Discipline
In a falling rate environment, FHN's ability to cut deposit costs is the primary margin defender. Interest-bearing deposit costs fell 25 bps QoQ to 2.53%, with a spot rate of 2.34% at quarter-end. This spot rate suggests further NIM protection in 26Q1 even if loan yields continue to slide.
Noninterest Income Softness
Decelerating. Noninterest income fell $3M QoQ. Mortgage banking fees dropped $5M due to a prior-quarter MSR sale, and deferred compensation income fluctuated. While Fixed Income was stable ($57M), the lack of growth in fee-generating lines places more pressure on NII to drive the bottom line.
Expense Control & Operating Leverage
Accelerating efficiency. Adjusted noninterest expense decreased $1M QoQ to $541M despite revenue-related commission increases. The Adjusted Efficiency Ratio improved to 60.73%, supporting PPNR stability even as revenue growth flattened sequentially.
Commercial Real Estate Shrinkage
Stable/Negative. CRE balances dropped $111M QoQ and are down $858M YoY. While this de-risks the balance sheet, the continued runoff in this high-yield book creates a headwind that C&I and Mortgage Finance must consistently outpace to show net growth.
Zero Provision vs. Rising NCOs
Potential divergence. The bank recorded $0 provision for credit losses in Q4, despite Net Charge-Offs (NCOs) rising to $30M (19 bps) from $26M in Q3. While ACL/Loans dropped to 1.31%, relying on reserve releases or zero provision to support EPS is not a sustainable long-term driver if NCOs continue to tick up.
Macro: Fed Rate Cut Impact
The impact of two Fed rate cuts in the quarter was immediate. Loan yields dropped 23 bps. Over half the portfolio is indexed to short-term rates, confirming the bank's asset sensitivity. Future performance relies heavily on deposit beta management.
Other KPIs
Stable. Declined only 4 bps QoQ despite significant loan yield headwinds. The spot deposit rate of 2.34% (vs 2.53% average) provides a tailwind entering 2026.
Accelerating. Up from 14.5% in Q3 and 9.2% a year ago. Driven by improved earnings power and active capital management (buybacks reducing the denominator).
Aggressive. Repurchased shares at an average price of $21.32. This represents a significant acceleration in capital return, contributing to the EPS growth but weighing on CET1.
Guidance
Specific numeric guidance for FY26 was not included in the provided earnings release text. Management referenced 'sustainable growth' and 'positive momentum' qualitatively. (Note: Specifics likely provided on the live call, which was not included in source materials).
Key Questions
NIM Floor in 2026
With the spot deposit rate at 2.34% and loan yields falling, where do you see the NIM stabilizing if the Fed continues to cut rates in 2026? Have we seen the peak of deposit beta benefits?
Sustainability of Zero Provision
You recorded zero provision this quarter while NCOs ticked up to $30M. With the ACL ratio falling to 1.31%, should we model a return to provision builds in Q1/Q2 2026 to match loan growth?
Loan Growth Composition
Q4 growth was heavily reliant on Mortgage Companies (LMC) and C&I. What is the outlook for CRE stabilization, and can C&I demand sustain this growth rate without the seasonal LMC boost?
Expense Trajectory
Adjusted expenses were well-controlled in Q4. As we enter 2026, what are your expectations for expense growth, particularly regarding technology investments mentioned in prior quarters?
Capital Floor
CET1 has moved from 11.2% to 10.6% in a year. Is 10.5% a hard floor, or would you consider operating lower given the benign credit environment? How does this impact the buyback pace for 2026?