First Horizon (FHN)

Regional banking company First Horizon (NYSE:FHN) beat Wall Street’s revenue 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.

Company Overview

Tracing its roots back to 1864 during the Civil War era, First Horizon (NYSE:FHN) is a Tennessee-based bank holding company that provides commercial and consumer banking, wealth management, and specialty financial services across multiple states.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

First Horizon competes with major national banks like JPMorgan Chase, Bank of America, and Wells Fargo, as well as strong regional players including Truist Bank, Regions Bank, Fifth Third Bank, PNC Bank, and Synovus Bank, along with numerous community banks and credit unions in its operating markets.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Regrettably, First Horizon’s revenue grew at a tepid 2.8% compounded annual growth rate over the last five years. This was below our standards and is a tough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. First Horizon’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.2% annually. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, First Horizon reported year-on-year revenue growth of 7.5%, and its $889 million of revenue exceeded Wall Street’s estimates by 5.6%.

Net interest income made up 73.2% of the company’s total revenue during the last five years, meaning lending operations are First Horizon’s largest source of revenue.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.

Over the last five years, First Horizon’s efficiency ratio has increased by 4 percentage points, going from 67.8% to 60.4%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

First Horizon’s efficiency ratio came in at 61.9% this quarter, falling short of analysts’ expectations by 258.3 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

For the next 12 months, Wall Street expects First Horizon to rein in some of its expenses as it anticipates an efficiency ratio of 59.2%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

First Horizon’s EPS grew at an astounding 11.1% compounded annual growth rate over the last five years, higher than its 2.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For First Horizon, its two-year annual EPS growth of 5.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, First Horizon reported adjusted EPS of $0.51, up from $0.42 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects First Horizon’s full-year EPS of $1.81 to grow 1.5%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

First Horizon’s TBVPS grew at an impressive 7% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 11.5% annually over the last two years from $11.22 to $13.94 per share.

Over the next 12 months, Consensus estimates call for First Horizon’s TBVPS to grow by 5.7% to $14.73, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, First Horizon has averaged a Tier 1 capital ratio of 11.1%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, First Horizon has averaged an ROE of 10.5%, impressive for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for First Horizon.

We were impressed by how significantly First Horizon blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 5.2% to $24.19 immediately following the results.

Updated: December 4, 2025 at 11:43 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

First Horizon isn’t a terrible business, but it doesn’t pass our quality test. First off, its revenue growth was weak over the last five years. And while its TBVPS growth was impressive over the last five years, the downside is its estimated net interest income for the next 12 months are weak. On top of that, its estimated sales for the next 12 months are weak.

First Horizon’s P/B ratio based on the next 12 months is 1.3x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $24.76 on the company (compared to the current share price of $22.83).