First Horizon Announces Results of its 2024 Company-Run Stress Test

Rhea-AI Summary

First Horizon (NYSE: FHN) has announced the results of its 2024 company-run capital stress test. The test, utilizing the Federal Reserve's 2024 Severely Adverse Scenario, demonstrated that First Horizon would maintain capital ratios well above regulatory-required minimums under hypothetical severe economic downturns. Key highlights include:

- A minimum Common Equity Tier 1 capital ratio of 9.5%, 500 bps above the regulatory minimum
- A loan portfolio stressed loss rate of 2.5%, significantly lower than the 6.8% Federal Reserve-published median DFAST result
- Pre-provision net revenue as a percentage of total assets at 4.6%, exceeding the peer median of 1.9%

These results reflect First Horizon's strong risk discipline, diversified loan portfolio, and countercyclical businesses.

Positive

• Maintained capital ratios well above regulatory minimums in stress test scenario
• Common Equity Tier 1 capital ratio of 9.5%, 500 bps above regulatory minimum
• Loan portfolio stressed loss rate of 2.5%, significantly lower than 6.8% Federal Reserve median
• Pre-provision net revenue as percentage of total assets at 4.6%, exceeding 1.9% peer median
• Strong performance attributed to diversified loan portfolio and countercyclical businesses

Negative

• None.

Insights

Financial Analyst

As a seasoned financial analyst, I find First Horizon's 2024 stress test results quite impressive. The bank's ability to maintain a minimum Common Equity Tier 1 (CET1) capital ratio of 9.5% under severe economic conditions is noteworthy, especially considering it's 500 basis points above the regulatory minimum. This robust capital position speaks volumes about the bank's risk management practices and financial resilience.

What's particularly striking is First Horizon's loan portfolio stressed loss rate of 2.5%, which is significantly lower than the 6.8% Federal Reserve-published median DFAST result. This lower loss rate can be attributed to the bank's prudent portfolio mix, including low-loss loans to mortgage companies and exposure to high-loss rate credit cards. It's a clear indication of the bank's conservative lending practices and effective risk assessment.

Moreover, the bank's pre-provision net revenue as a percentage of total assets at 4.6% outperforming the peer median of 1.9% is impressive. This suggests that First Horizon has a strong ability to generate income even in stressed scenarios, which is important for maintaining capital levels and absorbing potential losses.

The bank's countercyclical businesses, including loans to mortgage companies, mortgage warehouse and FHN Financial, provide a buffer against stress in pre-provision net revenue. This diversification strategy appears to be paying off, enhancing the bank's resilience to economic downturns.

Overall, these results indicate that First Horizon is well-positioned to weather severe economic storms while continuing to support its clients and potentially capitalize on opportunities during challenging times. For investors, this translates to a lower risk profile and potentially more stable returns compared to peers with less robust stress test performances.

Risk Management Expert

From a risk management perspective, First Horizon's 2024 stress test results are exemplary. The bank's ability to maintain capital ratios well above regulatory minimums under severe economic conditions demonstrates the effectiveness of its risk management framework and capital planning processes.

The projected stressed capital ratios are particularly impressive:

• Common equity tier 1 capital ratio: 9.5% minimum (vs 4.5% required)
• Tier 1 risk-based capital ratio: 10.5% minimum (vs 6.0% required)
• Total risk-based capital ratio: 12.7% minimum (vs 8.0% required)
• Tier 1 leverage ratio: 9.3% minimum (vs 4.0% required)

These results indicate a significant buffer above regulatory requirements, which is important for maintaining financial stability and operational flexibility during economic downturns.

The bank's low loan portfolio stressed loss rate of 2.5% is a testament to its strong credit risk management practices. This figure, being significantly lower than the Federal Reserve's median result, suggests that First Horizon has implemented effective strategies to mitigate credit risk across its loan portfolio.

Furthermore, the bank's ability to maintain a $0.15 quarterly common stock dividend throughout the stress scenario demonstrates confidence in its capital generation capabilities even under adverse conditions. This is a positive signal for shareholders regarding the stability of dividend payments.

The outperformance in pre-provision net revenue as a percentage of total assets (4.6% vs peer median of 1.9%) highlights the bank's operational efficiency and ability to generate income even in stressed scenarios. This resilience is further bolstered by the bank's countercyclical businesses, which provide a hedge against economic downturns.

In conclusion, these stress test results reflect a well-managed institution with robust risk management practices, diversified revenue streams and strong capital planning processes. For stakeholders, this translates to a lower risk profile and increased confidence in the bank's ability to navigate challenging economic environments.

MEMPHIS, Tenn., July 30, 2024  /PRNewswire/ -- First Horizon Corporation (NYSE: FHN) ("First Horizon" or "the Company") announced today its 2024 Company-run capital stress test results. The 2024 test showed that, under hypothetical severe economic and business downturns, First Horizon would maintain capital ratios well above regulatory-required minimums. These internally generated results, which utilized the 2024 Severely Adverse Scenario published by the Federal Reserve on February 15, 2024, reflect continued strong risk discipline.

"Our 2024 capital stress test results in a minimum Common Equity Tier 1 capital ratio of 9.5% which is 500 bps over the required regulatory minimum," said Chief Financial Officer Hope Dmuchowski. "That buffer is driven by FHN's diversified loan portfolio, countercyclical businesses, and strong risk culture that enables the bank to support clients as well as pursue opportunistic relationships through economic cycles."

The following table reflects the Company's starting, ending, and minimum capital ratios under the Federal Reserve's Severely Adverse Scenario compared to required regulatory minimums.

% Regulatory Ratio	Actual	Projected Stressed Capital Ratios		Regulatory Capital Ratios
	4Q23	Ending	Minimum	Minimum
Common equity tier 1 capital ratio	11.4 %	11.1 %	9.5 %	4.5 %
Tier 1 risk-based capital ratio	12.4 %	12.1 %	10.5 %	6.0 %
Total risk-based capital ratio	14.0 %	14.0 %	12.7 %	8.0 %
Tier 1 leverage ratio	10.7 %	10.9 %	9.3 %	4.0 %

 

These results include a $0.15 quarterly common stock dividend throughout the nine-quarter scenario horizon.

First Horizon's loan portfolio stressed loss rate of 2.5% is significantly lower than the 6.8% loss rate from the Federal Reserve-published median DFAST result. FHN's lower loss rate benefits from portfolio mix including low loss loans to mortgage companies and limited exposure to high loss rate credit cards. Additionally, the Company's pre-provision net revenue as a percentage of total assets of 4.6% exceeded the peer median of 1.9%. FHN's stresses to pre-provision net revenue are buffered by its countercyclical businesses of loans to mortgage companies, mortgage warehouse, and FHN Financial.

For more information, please see First Horizon's 2024 stress test disclosure at  https://ir.firsthorizon.com/fixed-income/stress-test-results/default.aspx.

About First Horizon
First Horizon Corp. (NYSE: FHN), with $82.2 billion in assets as of June 30, 2024, is a leading regional financial services company, dedicated to helping our clients, communities and associates unlock their full potential with capital and counsel. Headquartered in Memphis, TN, the banking subsidiary First Horizon Bank operates in 12 states across the southern U.S. The Company and its subsidiaries offer commercial, private banking, consumer, small business, wealth and trust management, retail brokerage, capital markets, fixed income, and mortgage banking services. First Horizon has been recognized as one of the nation's best employers by Fortune and Forbes magazines and a Top 10 Most Reputable U.S. Bank. More information is available at www.FirstHorizon.com.

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SOURCE First Horizon Corporation

FAQ

What was First Horizon's (FHN) minimum Common Equity Tier 1 capital ratio in the 2024 stress test?

First Horizon's minimum Common Equity Tier 1 capital ratio in the 2024 stress test was 9.5%, which is 500 basis points above the required regulatory minimum of 4.5%.

How did First Horizon's (FHN) loan portfolio stressed loss rate compare to the Federal Reserve median in the 2024 stress test?

First Horizon's loan portfolio stressed loss rate was 2.5%, significantly lower than the 6.8% loss rate from the Federal Reserve-published median DFAST result.

What was First Horizon's (FHN) pre-provision net revenue as a percentage of total assets in the 2024 stress test?

First Horizon's pre-provision net revenue as a percentage of total assets was 4.6%, which exceeded the peer median of 1.9%.

Did First Horizon (FHN) maintain its dividend in the 2024 stress test scenario?

Yes, the stress test results include a $0.15 quarterly common stock dividend maintained throughout the nine-quarter scenario horizon.