First Horizon's Credit Ratings Outlook Upgraded to Positive by Moody's

Moody's upgraded First Horizon Corporation's (FHN) credit ratings outlook to positive, citing franchise growth in the Southeast, improved deposit quality, solid capitalization with a Moody’s-adjusted tangible common equity (TCE) ratio of 10.6% and a CET1 ratio of 10.9% as of March 2025, and diversification in lending supported by its specialty commercial and industrial (C&I) lending platforms. The ratings affirmation reflects consistent performance, decent asset quality, and adequate liquidity, though Moody's notes that an upgrade is contingent on continued prudent risk management and deposit quality improvements, while a weakening risk profile could revert the outlook to stable.

Analysis

Moody's has upgraded First Horizon Corporation's (FHN) credit ratings outlook to positive from stable, while affirming the Baa3 long-term issuer rating. This revision is attributed to FHN's strengthening regional banking franchise in the Southeast, driven by strategic investments in technology and marketing that have expanded its market share, coupled with enhanced risk management practices and an improved deposit franchise noted for successful depositor attraction and high relationship retention. The bank's financial health is underscored by solid capitalization, including a Moody’s-adjusted tangible common equity (TCE) ratio of 10.6% and a CET1 ratio of 10.9% as of March 2025, alongside decent asset quality and adequate liquidity. FHN's diversification in both geography and lending, particularly through its specialty commercial and industrial (C&I) lending platforms, further supports its stability, and its Commercial Real Estate (CRE) exposure is viewed by Moody's as conservatively underwritten with limited office and construction concentration. The resilience of FHN's deposit franchise, especially following the termination of the planned merger with Toronto-Dominion Bank in 2023, is a key strength. However, FHN's profitability faces challenges from volatile fee income, particularly stemming from its FHN Financial’s trading operations and mortgage-related businesses, which are sensitive to market conditions. Indicative of market reception, FHN's shares have risen 36.5% over the past year, outperforming the industry’s 24.4% growth. A formal rating upgrade hinges on FHN's continued demonstration of prudent risk management, sustained strong capitalization, and improved deposit quality without over-reliance on brokered or wholesale funding; conversely, a weakening in these areas could see the outlook revert to stable.

Key Decisions for Investors

• Investors should interpret Moody's positive outlook for First Horizon (FHN) as a strong endorsement of its enhanced franchise strength, improved deposit base, and robust capitalization, evidenced by a Moody's-adjusted tangible common equity ratio of 10.6% and a CET1 ratio of 10.9% as of March 2025, which could pave the way for a ratings upgrade if current progress is sustained.