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

Moody's has upgraded First Horizon Corporation's (FHN) credit rating outlook to positive, citing the company's strengthening regional banking franchise in the Southeast, improvements in asset quality and funding, and a resilient deposit franchise, particularly following the termination of its merger with Toronto-Dominion Bank; the rating affirmation reflects First Horizon's consistent performance, decent asset quality, strong capitalization, and adequate liquidity, with a Moody’s-adjusted tangible common equity (TCE) ratio of 10.6% and a CET1 ratio of 10.9% as of March 2025.

Analysis

Moody's has upgraded First Horizon Corporation's (FHN) credit rating outlook to positive from stable, while affirming its Baa3 long-term issuer rating. This positive revision is attributed to FHN's strengthening regional banking franchise in the Southeast, driven by an expansive footprint and strategic investments in technology and marketing that have increased market share and bolstered risk management. The company has also demonstrated improvements in its deposit franchise, successfully attracting and retaining depositors, particularly notable following the termination of its planned merger with Toronto-Dominion Bank in 2023. Moody's highlighted FHN's consistent performance, which underpins the rating affirmation, citing decent asset quality, strong 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 adequate liquidity. The bank benefits from diversification in geography and lending, including secured, lower-loss commercial and industrial (C&I) lending products, and while commercial real estate (CRE) exposure is a general concern, Moody's views FHN's portfolio as conservatively underwritten with limited office and construction exposure. Profitability is recovering, supported by specialty lending and deposit pricing management, though fee income remains volatile due to reliance on FHN Financial's trading and mortgage-related businesses. An upgrade is contingent on continued prudent risk management, sustained strong capitalization, and improved deposit quality without excessive reliance on brokered funding. FHN's shares have risen 36.5% over the past year, outperforming the industry's 24.4% growth, and it currently holds a Zacks Rank #3 (Hold).

Key Decisions for Investors

• Investors should view Moody's positive outlook revision as a strong validation of First Horizon's enhanced credit profile, improved franchise strength, and effective risk management, particularly its resilient deposit base and capital adequacy.
• Monitor FHN's progress in sustaining its strong capitalization levels (TCE 10.6%, CET1 10.9%) and improving deposit quality, as these are key catalysts for a potential future rating upgrade and could signal further fundamental strength.
• While the overall outlook is positive, remain cognizant of the volatility in FHN's fee income streams, especially from trading and mortgage activities, and continue to assess the performance and risk profile of its CRE loan portfolio, even with current conservative underwriting.
• Consider the recent significant share price appreciation (36.5% year-over-year) and the current Zacks Rank #3 (Hold) in conjunction with the positive credit news to assess valuation and entry or exit points.