First Horizon Stock Up Nearly 36% in a Year: How to Approach Now?

First Horizon Corporation FHN shares have rallied 36.2% in the past year compared with the industry’s growth of 10.1%. The company has also outperformed its peers, BOK Financial Corporation BOKF and Cullen/Frost Bankers CFR, which have gained 5.0% and 16.9%, respectively, in the same time frame.

One-Year Price Performance

Can FHN shares continue gaining after their recent strength? Let’s take a closer look.

What’s Supporting FHN’s Performance?

Rising Loans & Deposit Balances: First Horizon continues to benefit from solid loan and deposit growth over the years. The loan balance witnessed a compound annual growth rate (CAGR) of 15% between 2019 and 2024. Further, the bank’s deposits also witnessed a CAGR of 15.1% during the same period. At the end of the second quarter of 2025, the loan balance rose 1.7% year over year to $63.3 billion. Similarly, the deposit balance rose 2.1% year over year to $65.6 billion during the same period.

Loan Growth Trend

Deposit Growth Trend

Going forward, with a strong business mix of regional and specialty banking franchises across its attractive, high-growth region, FHN is well-positioned to continue witnessing loan and deposit growth.

Fed Rate Cuts to Aid Net Interest Income (NII): Over the past five years, the bank’s NII expanded at a compound annual growth rate (CAGR) of 15.7%, with the momentum extending into the first half of 2025.

Following July’s optimistic headline inflation data from the Consumer Price Index, investor sentiment has continued to peak in anticipation that the Federal Reserve could cut interest rates during the next FOMC meeting in September. With the central bank’s expected rate cuts, FHN should be well-positioned to benefit as funding costs gradually ease. Also, a softer rate environment is expected to boost lending activity, which will further aid NII expansion. This, along with an asset-sensitive balance sheet (significant exposure to floating rate loans), will likely support margins and NII in the upcoming period.

Decent Liquidity Aid Capital Distribution: As of June 30, 2025, the total cash and cash equivalents were $3.86 billion. Its short-term debt was $3.46 billion, and the long-term debt stood at $1.34 billion.

Given a decent balance sheet position, First Horizon rewarded its shareholders handsomely. The company raised its common dividend by 7% to 15 cents per share in January 2020 and has consistently maintained that level since then. Further, the company has a current dividend yield of 2.75% with a payout ratio of 35%. Notably, the dividend yield of its peers, BOK Financial and Cullen/Frost, are 2.16% and 3.16% respectively.

The company also has a share repurchase plan. It authorized a $1 billion share repurchase plan in October 2024, which is set to expire on Jan. 31, 2026. As of June 30, 2025, nearly $511 million remained available for buybacks under this plan.

These shareholder-friendly actions, supported by decent liquidity, are likely to boost investor confidence in the stock.

Near-Term Hurdles for FHN

Rising Expenses: An escalating expense base is a major concern for FHN. Non-interest expenses witnessed a five-year (2019-2024) CAGR of 10.6%. Though the expenses declined in the first half of 2025, rising investment in technology and personnel expenses, as well as higher revenue-driven incentives, are likely to keep the expenses high in the near term.

Expense Trend

Loan Concentration: The company’s loan portfolio comprises largely commercial and commercial real estate loans (76.3% of the total loans as of June 30, 2025). The volatile macroeconomic backdrop has put a strain on commercial lending. Also, the asset quality of the loan category has deteriorated. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.

How Should You Play FHN Stock Now?

First Horizon’s rising loans and deposit balances, along with rising NII balance, are expected to aid its financials in the long run. Its decent liquidity supports the capital distribution plan.

Driven by favorable factors, the company’s earnings are expected to rise in 2025 and 2026.

Earnings Estimates

However, a rising expense base, alongside a heavy concentration in commercial lending, poses near-term challenges. FHN’s performance in the near term will be greatly influenced by its capacity to navigate these challenges to maximize financial performance. Investors should keep a close eye on these issues before taking a well-informed investment decision.

Those who already own the stock in their portfolio can hold on to it because it is less likely to disappoint over the long term, given its strong fundamentals. First Horizon presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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