First Horizon Corporation (NYSE: NYSE:FHN) disclosed its 2023 Bank Holding Company-run capital stress test results on Friday, demonstrating its ability to navigate economic stress periods and maintain capital ratios significantly above regulatory-required minimums. The results, reflecting the company's robust risk discipline, were internally generated using the 2023 Severely Adverse Scenario published by the Federal Reserve on February 9, 2023.
According to Chief Financial Officer Hope Dmuchowski, the stress test results showcase the resilience of First Horizon's diversified business model, strong capital position, and commitment to prudent risk management through all economic environments. The firm's minimum common equity tier 1 capital ratio of 8.7% signifies an additional $4 billion of pre-tax loss absorption capacity beyond the required regulatory minimums. The company's stressed loss rates and pre-provision net revenue results outperformed the Federal Reserve published CCAR-bank median.
The company's market capitalization is currently at 6260M USD according to InvestingPro data. The P/E ratio stands at 5.59, indicating that the stock is trading at a low earnings multiple, which is one of the InvestingPro Tips for FHN. Moreover, the company has maintained dividend payments for 13 consecutive years, a fact that is attractive to investors seeking steady income streams.
The Company's ending and minimum capital ratios under the Federal Reserve's Severely Adverse Scenario compared to the required regulatory minimums are as follows:
- Common equity tier 1 capital ratio: 10.2% (end of Q4 2022), 8.8% (minimum), and 8.7% (projected stressed), against a regulatory minimum of 4.5%
- Tier 1 risk-based capital ratio: 11.9% (end of Q4 2022), 10.4% (minimum), and 10.4% (projected stressed), against a regulatory minimum of 6%
- Total risk-based capital ratio: 13.3% (end of Q4 2022), 12.6% (minimum), and 12.6% (projected stressed), against a regulatory minimum of 8%
- Tier 1 leverage ratio: 10.4% (end of Q4 2022), 9.5% (minimum), and 9.4% (projected stressed), against a regulatory minimum of 4%
In addition, First Horizon's loan portfolio stressed loss rate of 2.3% was 3.9 percentage points below the Federal Reserve-published median CCAR-bank result. The stress test utilized Current Expected Credit Loss-based models for allowance and credit losses, reflecting total cumulative losses of $1.3 billion. The Company's pre-provision net revenue as a percentage of total assets of 2.7% exceeded the peer median of 2.1%.
First Horizon Corp., a leading regional financial services company with $85.1 billion in assets as of June 30, 2023, operates in 12 states across the southern U.S. The company offers a range of services including commercial, private banking, consumer, small business, wealth and trust management, retail brokerage, capital markets, fixed income, mortgage, and title insurance services.
InvestingPro Tips also suggest that despite the stock suffering from weak gross profit margins and a significant fall in price over the last year, analysts predict that the company will be profitable this year. This prediction aligns with the company's robust financial results and stress test performance, indicating a potential upside for investors. For more insightful tips, readers are encouraged to visit InvestingPro, which offers additional tips on FHN and other stocks.
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