FHN Q3 Deep Dive: Loan Growth, Deposit Competition, and M&A Optionality Shape Outlook

Regional banking company First Horizon (NYSE:FHN) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 7.5% year on year to $889 million. Its non-GAAP profit of $0.51 per share was 14.6% above analysts’ consensus estimates.

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StockStory’s Take

First Horizon’s third quarter results outpaced Wall Street’s expectations, yet the market response was notably negative. Management attributed the quarter’s performance to an uptick in loan yields and margin expansion, driven in part by growth in the mortgage warehouse business and a one-time benefit from the Main Street lending program. CFO Hope Dmuchowski emphasized strong retention on repriced deposits and highlighted increased customer activity, particularly in fixed income fees and mortgage operations. CEO D. Bryan Jordan remarked on a “noticeable” uptick in client confidence and pipeline momentum, but also acknowledged the ongoing competition for core deposits and the careful balancing act needed to maintain favorable deposit pricing.

Looking ahead, First Horizon’s guidance rests on achieving sustainable loan growth, maintaining expense discipline, and managing capital ratios as rate cuts progress. Management underscored their focus on relationship-driven banking, ongoing technology investments, and capturing $100 million-plus in pre-tax net revenue opportunities over the next two years. CEO Jordan reiterated the company’s commitment to organic growth but left the door open for potential M&A, stating, “given the changing environment, we are in an increasingly improving position to consider fill-in opportunities in our franchise.” The company expects lower rates to support broader economic activity and remains confident in reaching its 15% adjusted return on tangible common equity goal.

Key Insights from Management’s Remarks

Management cited improved loan yields, a favorable deposit mix, and strong fixed income activity as core drivers of the quarter, with expense growth tempered by targeted investments and a one-time foundation contribution.

• Loan yield expansion: Net interest income growth was supported by higher average loan balances, especially in the mortgage warehouse segment, and a 14 basis point increase in total loan yield. Management highlighted that a one-time Main Street lending program benefit boosted net interest margin this quarter, but underlying loan growth trends remain consistent.
• Deposit retention and pricing: Despite an industry-wide decline in deposits, First Horizon retained approximately 97% of repriced client balances this quarter. Executives described a strategic focus on balancing competitive rates with retention, using targeted marketing and cash offers to attract new clients amid continued deposit competition.
• Fee income strength: Fee income rose due to improved business conditions, notably in fixed income activity at FHN Financial and increased mortgage fees, supported by a mortgage servicing rights sale. However, management noted that the boost from fixed income may not be sustained at the same level in coming quarters.
• Expense management and investments: Adjusted expenses increased, partly due to higher personnel costs tied to incentives and commissions from elevated customer activity, as well as a $20 million foundation contribution to maximize tax advantages. Technology and risk project spending also contributed as the bank continued investing in digital capabilities.
• Capital deployment and buybacks: With a flat core equity tier 1 (CET1) ratio of 11%, the company accelerated share repurchases, buying back $190 million of stock during the quarter. Management emphasized that capital deployment will continue to prioritize organic loan growth, with buybacks as a secondary use, and confirmed a $300 million remaining authorization.

Drivers of Future Performance

First Horizon’s outlook is driven by the expectation of sustained loan growth, expense discipline, and capital normalization as the rate environment shifts and competition for deposits persists.

• Sustained organic loan growth: Management expects mid-single digit loan growth in 2026, supported by improving client confidence as interest rates decline. CEO Jordan noted that construction and commercial real estate lending pipelines are building, although paydowns will continue in the near term.
• Expense and efficiency initiatives: The company is targeting flat expenses over the next year, while still investing in technology and expanding retail banking capabilities. Management believes ongoing efficiency projects and strategic outsourcing will help contain costs even as the franchise grows.
• Capital and M&A flexibility: First Horizon aims to reduce its CET1 ratio toward a near-term target of 10.75%. Management indicated that while organic growth remains the priority, the changing regulatory and competitive environment may create selective M&A opportunities within its existing Southern U.S. footprint, with tuck-in acquisitions more likely than larger deals.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be watching (1) the pace and sustainability of loan growth as rate cuts materialize and economic confidence builds, (2) the impact of deposit pricing strategies and new client acquisition efforts on core deposit balances, and (3) management’s ability to execute on $100 million-plus pre-tax net revenue opportunities while maintaining expense discipline. We will also closely monitor any signals of M&A activity as the regulatory environment evolves.

First Horizon currently trades at $20.90, down from $23.01 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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