First Horizon's earnings slip after portfolio restructuring

Elijah Nouvelage/Bloomberg

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First Horizon Bank's earnings declined in the fourth quarter after the bank posted a $91 million loss related to restructuring its securities portfolio.

For the three months ended Dec. 31, the Memphis, Tennessee-based bank posted net income of $165 million, or 29 cents a share, down from $183 million, or 31 cents a share, a year ago. Revenue totaled $729 million, down 9% from a year ago.

The earnings fell short of Wall Street forecasts. Analysts polled by S&P had expected earnings of 39 cents a share on revenue of $821.9 million.

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First Horizon Bank, which has spent most of the past two years regrouping from a failed TD Bank acquisition, reported net interest income rose 2% to $630 million while noninterest income fell 46% to $99 million after the portfolio restructuring.

"Our fourth quarter and full-year 2024 results reflect focused execution of our strategic priorities," Chairman, President and Chief Executive Officer Bryan Jordan said in a press release Thursday. "Strong client relationships and our attractive business mix positioned us to deliver earnings through a complex interest rate cycle."

First Horizon's net interest margin rose six basis points to 3.33%, in part due to lower interest-bearing deposit costs and payoff of brokered CDs. Those gains were partially offset by the impact of lower short-term rates on loan yields, the bank said.

Looking ahead, First Horizon expects continued credit normalization in 2025, with net charge-offs of 0.15% to 0.25%. In 2024, net charge-offs were 0.18%.

First Horizon's past two years have been partly defined by the bank's pivot from a planned acquisition by TD Bank that never happened. The deal was called off in early 2023, reportedly due to regulatory problems at TD Bank, which paid billions in fines over anti-money laundering violations. 

First Horizon's response to the canceled merger included a campaign to increase deposits and retain employees in the hope that accomplishing that would calm nervous investors.

A special interest rate offer boosted the bank's interest-bearing deposits by more than 4% in less than six months following the cancelled TD deal in 2023. The bank then began to lower the special rates, which expired on June 30, 2023, while it attempted to cross sell-products to the new consumers. 

The bank retained more than 90% of its customers and staff in the year that followed. First Horizon then increased technology investment to make up for upgrade time that was lost when First Horizon was preparing for an acquisition that never happened.

The recovery strategy thus far has been a winner with investors. First Horizon's stock increased from about $13 per share to about $21 per share during 2024, approaching its late 2022 high of $24 per share just before the TD deal fell through. In premarket trade on the New York Stock Exchange on Thursday, the stock was down about 4.2% at $20.50.

KBW recently upgraded First Horizon to outperform from market perform, adding the bank had shown that it will "do right" by its shareholders, even if it is not for sale.