FHN Q1 2025: 9bp Net Interest Margin Gain, $360M Stock Buybacks
- Deposit Pricing Discipline & Margin Expansion: Management highlighted improved deposit pricing (with new-to-bank campaigns and lower deposit rates) that helped achieve a 9 basis points net interest margin expansion and supports the bank’s potential for rising pre-provision net revenue.
- Diversified, Countercyclical Business Model: The executives emphasized a balanced model with diversified revenue streams (including mortgage, fee, and fixed income businesses) that provide a natural hedge during economic volatility, supporting a resilient earnings outlook.
- Sound Credit Performance & Strategic Capital Deployment: The bank’s strong credit fundamentals—with a low net charge-off ratio (around 19 basis points)—and proactive capital deployment through significant share repurchases (approximately $360 million) bolster confidence in sustainable profitability.
- Macroeconomic uncertainty and rate cuts: If the anticipated three rate cuts do not materialize—or if any rate cuts overshoot, further stressing its asset‐sensitive balance sheet—the bank may face muted net interest margin expansion and potential NII deterioration amid ongoing macroeconomic volatility.
- Expense pressures vs. low loan growth: Guidance relies on a significant ramp in commission and other operating expenses. If loan growth remains in the low single digits, rising expenses could compress profits and hinder PPNR growth.
- Competitive and market pressures in CRE and deposits: Slower growth in CRE lending—exacerbated by raw material cost uncertainty and competitive pressures—and challenges in attracting quality, new-to-bank deposits might raise deposit costs and reduce margin benefits.
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PPNR Growth
Q: How will PPNR grow amid rate cuts?
A: Management explained a base case of three rate cuts with low single-digit loan growth, supported by disciplined expense management and a 9 bps net interest margin expansion, which together support steady PPNR growth. -
Target Returns
Q: When will ROTCE hit 15%+ levels?
A: They believe historical performance can be repeated, aiming for a 15%+ return on tangible common equity over the next few years as CET1 ratios are gradually reduced to around 10–10.5%. -
Capital Management
Q: What is the share buyback and CET1 strategy?
A: Management repurchased $360 million of stock this quarter and indicated that, depending on economic conditions, they may lower the CET1 target closer to 10.5% through continued share buybacks. -
Mortgage Warehouse
Q: How will mortgage warehouse evolve at stable rates?
A: The business has broadened its base—with roughly 25% of production from refinances—and is expected to benefit further if rate cuts occur, using its countercyclical nature to support growth. -
Reserves & Credit Risk
Q: What adjustments are being made to reserves?
A: Amid heightened uncertainty, the bank increased reserves by 2 basis points as a prudent measure, maintaining a strong credit profile despite 19 bps net charge-offs. -
Deposit Cost Management
Q: How will deposit costs be controlled?
A: By actively repricing deposits, maintaining an 80% beta on interest-bearing ones, and launching new-to-bank campaigns, management aims to keep deposit costs from drifting higher. -
CRE Lending Outlook
Q: What is the view on CRE lending growth?
A: There is optimism about the CRE pipeline—especially in construction financing—though tariff-related raw material cost uncertainty may temporarily slow new project initiations.
Research analysts covering FIRST HORIZON.