Executive Summary / Key Takeaways

• Strong Q2 2025 Performance & PPNR Growth: First Horizon delivered adjusted diluted EPS of $0.45 in Q2 2025, a $0.03 increase from the prior quarter, driven by $4 million in pre-provision net revenue (PPNR) growth and improving credit conditions. Net interest income (NII) increased $12 million year-over-year, supported by lower funding costs and a strategic securities portfolio restructuring.
• Foundational Technology Investments: A multi-year, $100 million technology investment roadmap, including a new general ledger and treasury management system, is enhancing operational efficiency and client experience. These initiatives are projected to unlock over $100 million in PPNR opportunities by deepening client relationships and driving revenue growth.
• Diversified Business Model & Disciplined Credit: FHN's balanced business model, particularly its countercyclical fixed income and mortgage warehouse lending segments, provides revenue stability. A strong credit culture is evident in Q2 2025 net charge-offs of 22 basis points and an Allowance for Credit Losses (ACL) to loans ratio of 1.42%, supported by conservative reserving practices.
• Prudent Capital Management: The company maintains a robust Common Equity Tier 1 (CET1) ratio of 10.99% (Q2 2025), near its 11% target. Strategic share repurchases, with $498 million already executed under a $1 billion program, demonstrate a commitment to shareholder returns while maintaining capital flexibility.
• Optimistic Outlook for Sustainable Returns: Management anticipates continued PPNR growth in 2025 and aims for a 15%+ return on tangible common equity (ROTCE) over the next 2-3 years. This outlook is underpinned by expected low-single-digit loan growth, disciplined deposit pricing, and leveraging its high-growth southern U.S. footprint.

A Legacy of Resilience and Strategic Evolution

First Horizon Corporation, a financial holding company with roots tracing back to 1864 in Memphis, Tennessee, has built a 160-year legacy of financial services in the southern U.S. Through its principal subsidiary, First Horizon Bank, the company offers a comprehensive suite of commercial, private banking, consumer, small business, wealth and trust management, retail brokerage, capital markets, fixed income, and mortgage banking services. This diversified model has been a cornerstone of its resilience, particularly in navigating recent economic turbulence.

The company's journey has been marked by strategic expansions, including the merger of equals with IBERIABANK Corporation in July 2020, which broadened its footprint and capabilities. More recently, the termination of a planned merger with TD (TD) in 2023, while a setback, catalyzed a renewed focus on internal operational enhancements and strategic technology investments. This period also saw FHN successfully manage through the 2023 banking crisis, which intensified industry-wide scrutiny on deposit mix and funding risk management. The company's ability to adapt and maintain stability through these varied challenges underscores its deep-seated operational discipline and strategic foresight.

The Technological Foundation: Fueling Future Growth and Efficiency

First Horizon's strategic vision for sustained profitability is deeply intertwined with its multi-year, $100 million investment roadmap in technology. This isn't about a single, groundbreaking invention, but rather a comprehensive modernization of its core banking infrastructure and digital client engagement tools. These investments are designed to create a robust, efficient, and client-centric platform, serving as a critical competitive moat.

A significant milestone was the completion of a brand-new general ledger system in Q2 2025, replacing a 40-year-old legacy system. This foundational upgrade, along with a treasury management system conversion completed in Q1 2025, represents the "run-the-bank" phase of its technology strategy. These improvements, while not directly revenue-generating, are crucial for enhancing operational efficiency, improving data analytics, and ensuring regulatory compliance. For instance, technology investments in 2024 contributed to a $4 million reduction in overdraft charges, reflecting tangible cost savings.

The "change the bank" phase of this investment is now unlocking direct revenue opportunities. Management explicitly links these tech investments to a projected "PPNR opportunity by $100 million or more over the coming years." This will be achieved by "deepening our relationships with our clients," leading to "increasing our loans to them, getting more deposits from them." The focus extends to building out advanced online and mobile banking tools and integrating consumer banking channels, as evidenced by the appointment of a new Head of Consumer Banking in August 2025, tasked with delivering an "integrated experience for consumer clients through all channels and touchpoints." These digital enhancements are vital for client acquisition, retention, and expanding service offerings, directly contributing to FHN's competitive edge and long-term ROTCE targets.

Operational Excellence: Driving Performance Across Key Segments

First Horizon's Q2 2025 results, filed on August 7, 2025, reflect the positive impact of its strategic initiatives and diversified business model. The company reported adjusted diluted earnings per share of $0.45, a notable increase from $0.34 in Q2 2024. Net interest income (NII) for the quarter stood at $641 million, up $12 million year-over-year, primarily driven by lower interest-bearing deposit costs and the benefits of a Q4 2024 securities portfolio restructuring. This restructuring involved selling $1.2 billion of securities with a 1.9% average yield and reinvesting at a 5.1% yield, expected to generate an incremental $35 million in annual NII with a 2.5-year earn-back period.

Profitability metrics remain robust, with a Net Profit Margin (TTM) of 17.39% and an Operating Profit Margin (TTM) of 22.40%. The net interest margin (NIM) in Q2 2025 was 3.40%, a 2 basis point increase from Q2 2024, despite a slight 2 basis point contraction quarter-over-quarter due to higher brokered deposit costs. For the first six months of 2025, NII reached $1.27 billion, up $19 million from the same period in 2024, and diluted EPS was $0.86, compared to $0.67 in the prior year.

The company's segments demonstrate varied but strategic contributions:

• Commercial, Consumer Wealth: This segment saw its pre-tax income rise to $379 million in Q2 2025, a 7.4% sequential increase and an 11.8% year-over-year jump. This growth was largely fueled by loan expansion and higher loan yields, alongside a significant $43 million year-over-year decrease in provision for credit losses. Management noted "good growth" in the C&I portfolio, particularly in asset-based lending and equipment finance.
• Wholesale: Pre-tax income for the Wholesale segment remained flat quarter-over-quarter at $29 million but increased 11.5% from Q2 2024. Net interest income benefited from strong growth in loans to mortgage companies, which increased by $587 million quarter-over-quarter. While fixed income average daily revenue (ADR) saw a 6% sequential decline due to less favorable market conditions, it was up 13% year-over-year to $550,000, showcasing the countercyclical strength of this business. Mortgage banking income also saw a seasonal pickup, increasing by $2 million.
• Corporate: This segment's pre-tax loss slightly increased by $1 million sequentially to $99 million but improved by $6 million year-over-year. This was aided by a $4 million expense credit related to a deferred compensation accrual release and lower FDIC special assessment expenses.

Deposit management remains a key strength. Total deposits of $65.577 billion in Q2 2025 were largely unchanged from year-end 2024, with interest-bearing deposits increasing and noninterest-bearing deposits seeing a slight decrease. The average rate paid on interest-bearing deposits increased marginally to 2.76% in Q2 2025, reflecting increased competition and funding needs. However, FHN's disciplined pricing strategy achieved a 72% interest-bearing deposit beta since Fed rate cuts began in Q3 2024, and the company successfully retained 95% of the $23 billion in deposits that repriced during the quarter.

Credit quality continues to be a highlight, reflecting FHN's "disciplined underwriting." Net charge-offs were 22 basis points of average loans in Q2 2025, remaining within management's expectations. The Allowance for Credit Losses (ACL) to total loans ratio stood at 1.42%, a slight decrease from December 2024, primarily due to growth in lower-risk mortgage warehouse lending and reductions in classified loans. Nonperforming loans (NPLs) decreased by $9 million to $593 million from year-end 2024. The ACL is conservatively reserved at over 9x its 5-year average annualized charge-offs, positioning the company well for various economic scenarios.

Capital Discipline and Shareholder Returns: A Balanced Approach

First Horizon maintains a robust capital position, with a Common Equity Tier 1 (CET1) ratio of 10.99% as of June 30, 2025, aligning closely with its near-term target of 11%. This strong capital base provides ample flexibility for strategic deployment. The company's capital objectives prioritize covering inherent business risks, maintaining well-capitalized standards, and ensuring access to capital markets.

Shareholder returns are a key focus. Under a $1 billion common stock purchase program approved in October 2024, FHN had repurchased $498 million in shares by June 30, 2025. This demonstrates management's confidence in the stock's valuation and its commitment to returning excess capital when organic growth opportunities are not fully utilized. The redemption of all outstanding Series B Preferred Stock on August 1, 2025, with a carrying value of $77 million, further optimizes the capital structure.

Liquidity remains strong, with available sources totaling $33.63 billion as of June 30, 2025, including cash on deposit with the Federal Reserve Bank ($813 million), Federal Home Loan Bank capacity ($8.66 billion), discount window access ($22.96 billion), and unencumbered securities ($1.19 billion). This robust liquidity, coupled with a loans-to-deposits ratio of 96% (Q2 2025), ensures the company can meet its funding needs and commitments.

Navigating the Competitive Currents and Macroeconomic Headwinds

First Horizon operates in a dynamic and competitive regional banking landscape, facing rivals like Regions Financial Corporation (RF), Truist Financial Corporation (TFC), Fifth Third Bancorp (FITB), and PNC Financial Services Group (PNC). While these larger peers often benefit from greater scale and broader geographic reach, FHN carves out its niche through a strong community-focused approach and specialized expertise.

FHN's Net Profit Margin (TTM) of 17.39% and Operating Profit Margin (TTM) of 22.40% are competitive, aligning closely with or even exceeding some peers like TFC (Net Profit Margin 20%, Operating Profit Margin -2%) and PNC (Net Profit Margin 17%, Operating Profit Margin 21%). FHN's Debt/Equity ratio of 0.54 is also more conservative than TFC (0.98), FITB (0.97), and PNC (1.13), indicating a disciplined approach to leverage. Its P/E ratio of 13.83, slightly higher than most direct competitors, suggests market confidence in its earnings quality and growth prospects.

The company's competitive advantages stem from its deep regional brand presence, extensive branch network in the southern U.S., and a customer-centric model that fosters loyalty. This allows FHN to maintain pricing power in local markets and leverage its expertise in specialized lending areas like mortgage warehouse, asset-based lending, and equipment finance. The ongoing technology investments are crucial to closing any innovation gap with larger, more digitally advanced competitors, enhancing client experience and operational efficiency.

However, FHN faces vulnerabilities inherent in its regional focus, which can expose it to localized economic downturns. The intense competition for deposits, exacerbated by the 2023 banking crisis and a contracting Fed balance sheet, continues to pressure funding costs. Lending markets are also increasingly competitive, leading to pressure on loan pricing and structures. Furthermore, emerging regulatory requirements, such as California's and the SEC's Greenhouse Gas (GHG) reporting regimes, could impose significant compliance costs, potentially creating a competitive disadvantage against private banks or those not operating in California. The instability in property insurance markets in its high-growth southern footprint, particularly due to severe weather events, also poses a risk to loan quality and business growth.

Outlook: Charting a Course for Sustained Profitability

First Horizon's management remains optimistic about its future trajectory, projecting continued pre-provision net revenue (PPNR) growth for the full year 2025. The company has adjusted its expense guidance to flat to up 2% year-over-year, reflecting successful expense management and lower commissions in countercyclical businesses. The total revenue guidance remains unchanged, designed to accommodate various interest rate scenarios, with countercyclical businesses providing a natural hedge against NII fluctuations.

The long-term objective is ambitious yet achievable: a 15%+ return on tangible common equity (ROTCE) over the next 2-3 years. This target is supported by a multi-pronged strategy:

• Organic Growth: Management anticipates low-single-digit to marginally mid-single-digit loan growth in 2025, driven by improving customer confidence and activity, particularly in the high-growth southern footprint. Bryan Jordan noted that "fundamentals in the economy, especially in our southern footprint will remain good for the back half of 2025 and into 2026."
• Deposit Franchise Expansion: Despite ongoing competition, FHN aims to grow noninterest-bearing and operating accounts, leveraging new-to-bank campaigns and relationship-based pricing to manage deposit costs effectively.
• Operational Efficiency & Technology Leverage: The $100 million-plus PPNR opportunity from existing businesses, directly tied to recent technology investments, is expected to drive both revenue growth and cost savings.
• Capital Optimization: While maintaining an 11% near-term CET1 target, management is open to lowering capital levels in a more stable economic environment, further enhancing ROTCE.

Conclusion

First Horizon Corporation stands as a testament to enduring financial strength and strategic adaptability. Its Q2 2025 results underscore a resilient performance, marked by PPNR growth, disciplined credit management, and a robust capital position. The company's deep-seated commitment to its southern U.S. footprint, coupled with a diversified business model that strategically leverages countercyclical revenue streams, provides a strong foundation against macroeconomic uncertainties.

Crucially, FHN's ongoing, multi-year technology investment program is not merely an operational upgrade but a strategic reinvention. By modernizing its core systems and enhancing client-facing digital capabilities, First Horizon is building a competitive moat that promises to unlock significant PPNR opportunities and drive long-term value. This technological leadership, combined with a prudent credit culture and flexible capital deployment, positions First Horizon to achieve its ambitious 15%+ ROTCE target, making it a compelling consideration for discerning investors seeking sustainable profitability in a dynamic banking environment.