FIRST HORIZON CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• Bryan Jordan started by offering condolences for New Orleans, highlighted 2024 results including EPS growth, margin expansion, strong credit performance, and $930M capital returned to shareholders.
• Hope Dmuchowski detailed Q4 financials, noting adjusted EPS $0.43, NII increase, credit performance, notable items (securities portfolio restructuring, $3M restructuring expenses, $1M FDIC assessment credit). Discussed deposit retention, loan growth, fee income, and expense management.
• Emphasized technology investments, operational efficiencies, and 2025 outlook, including balanced business model resilience and focus on organic client growth and capital deployment.

Segment Performance:

• Net Interest Income: Increased $2 million in Q4. Margin was 3.33%, driven by a 34 basis point decline in average interest-bearing deposit costs offsetting a 28 basis point reduction in average loan yields. Retained 95% of $18 billion of promotional deposits/CDs, achieving a 97 basis point reduction in weighted average rate.
• Loans: Average loans grew over 3%. Period-end loans slightly down ($1B decrease) due to payoff of brokered CDs. Market share gains in loans to mortgage companies, with $1.4B in lines opened/expanded for new/existing clients in 2024.
• Deposits: Grew over 2%.
• Fee Income: Excluding deferred compensation, decreased $5M, but fixed income had 11% increase from prior quarter, with average daily revenue at $659,000. Overdraft charge changes led to $4M reduction in service charges, expected to remain in run rate.
• Expenses: Adjusted expenses up $14M, primarily $10M contribution to First Horizon Foundation. Personnel expenses down $3M, occupancy/equipment up $3M, outside services down $2M, other non-interest expense up $16M.
• Credit: Net charge-offs 8 basis points, ACL to loans ratio 1.43%, NPLs increased 4 basis points driven by CRE, but over 60% of commercial NPLs current on payments.

Guidance:

• 2025 guidance unchanged from December: revenue flat to up 4%, adjusted expenses up 2%-4%, net charge-offs within 2024 range.
• Securities portfolio restructuring expected to add ~$35M annual NII, with earn-back period ~2.5 years.
• Balanced business model provides resilience across economic environments, with countercyclical businesses hedging asset sensitivity.
• Committed to deploying capital and evaluating share repurchase authority to reach 10.5%-11% CET1 range.

Risks:

• Market risks related to interest rate changes, which could impact net interest income and margin.
• Economic outlook uncertainties affecting credit quality and loan loss provisions.
• Regulatory changes that could impact capital requirements and operational costs.

Q: Christopher McGratty asked about revenue guide mapping to rate cuts.

A: Hope Dmuchowski responded that less rate cuts, steepened curve, and economic certainty help revenue reach high end of range.

Q: Nicholas Holowko asked about fixed income business trend and deposit cost repricing.

A: Bryan Jordan and Hope Dmuchowski discussed fixed income business trends and deposit cost repricing influenced by competition and rate cut expectations.

Q: Anthony Elian asked about deposit cost spot rate and expense levers if revenue is lower.

A: Hope Dmuchowski said spot rate will continue to trend down, and expenses can be adjusted via operational efficiencies if revenue is lower.

Q: Timur Braziler asked about noninterest-bearing deposits and CRE paydowns.

A: Hope Dmuchowski said noninterest-bearing deposits have stabilized, and Bryan Jordan discussed CRE paydowns influenced by rate cuts.

Q: Christopher Marinac asked about technology spending in 2025.

A: Hope Dmuchowski and Bryan Jordan discussed completed technology projects in 2024 and upcoming client-facing projects in 2025.

Q: Brennan Crowley asked about capital trade-off between buybacks and further restructuring.

A: Bryan Jordan and Hope Dmuchowski explained securities portfolio restructuring was opportunistic, and capital deployment is based on bottom-up approach to appropriate capital levels.