First Horizon National Corp. (FHN) Report Interpretation

Overview

This meeting note examines First Horizon’s path to better profitability through loan and deposit growth, fee initiatives, expense discipline, and capital deployment. Goldman Sachs sees meaningful medium-term return potential but keeps a Neutral rating and a $29 target price.

Core views

Goldman Sachs says management remains focused on improving profitability through a $100mn+ pre-provision net revenue (PPNR) opportunity over two to three years. The plan centers on expanding client relationships—particularly converting lending-only relationships into broader treasury-management, wealth-management, retail, and other relationships—while capturing remaining legacy Iberia operating-model synergies. The report estimates roughly $60mn of the opportunity remains, or about $47mn after tax, equivalent to $0.10 of FY27 EPS and 4.5% of consensus FY27 EPS; however, it believes much of this benefit is already embedded in consensus expectations. The lending outlook is constructive despite macro headwinds. Period-end loans reached $65.3bn in 2Q26, up 1.5% quarter-on-quarter and 3.3% year-on-year. C&I loans excluding loans to mortgage companies grew $710mn, or 7.4% year-on-year; CRE increased $175mn sequentially; and loans to mortgage companies rose $118mn, or 17.3% year-on-year. Management expects continued C&I strength, a multiyear CRE recovery as 2021–22 construction vintages transition to permanent financing, and further specialty and mortgage-warehouse share gains. It reiterated mid-single-digit full-year loan-growth guidance, while noting that loan growth materially above GDP growth could indicate rising leverage in the economy. Deposit growth and funding costs are central to the margin outlook. Period-end deposits were $68.1bn, up $1.6bn, or 2.4% sequentially and 3.8% year-on-year, largely reflecting a $2.0bn increase in brokered CDs used to fund seasonal mortgage-loan growth. FHN expects core deposits, excluding brokered and mortgage-company dynamics, to broadly keep pace with core loan growth. It is responding to competitive deposits through weekly, market- and product-specific pricing rather than uniform campaigns, and sees branch-density opportunities in markets including Nashville, Raleigh, Memphis, Dallas, and Tampa. Goldman Sachs notes that brokered funding should become a larger part of the funding mix; it offers term funding but comes at a higher cost. FHN reported 2Q26 NII-FTE of $676mn, up 1.3% quarter-on-quarter and 5.3% year-on-year, as $1.5bn of average-loan growth more than offset a 3bp NIM decline to 3.49%. The margin decline reflected a 5bp rise in interest-bearing-deposit costs to 2.33%, largely from brokered balances. Goldman Sachs estimates the reported 2.43% period-end spot deposit rate normalizes to about 2.38% after adjusting for temporarily elevated brokered deposits, versus the 2.33% quarterly average. Management expects NIM to settle in the mid-to-high 3.40% range. Goldman Sachs forecasts a 4bp NIM decline in 3Q26 followed by a 2bp rebound in 4Q26, with NII rising about 1% in 3Q and about 1.5% in 4Q as average earning assets grow and margin pressure eases. Fixed-rate repricing is a support: $6bn of assets, including $5bn of loans and $1bn of securities, are rolling off at favorable spreads. Mortgage-warehouse balances may be NIM dilutive but remain NII accretive; the report models a $4mn NII headwind in 3Q26 and a $1mn benefit in 4Q26 under its assumptions. Fee growth is another part of the PPNR case, although Goldman Sachs sees a demanding path to the midpoint of FHN’s 2026 revenue guide. Adjusted fee income was $196mn in 2Q26, down 0.5% sequentially but up 8.3% year-on-year. Brokerage, trust, and insurance revenue reached $45mn, up 7.0% quarter-on-quarter and 16.8% year-on-year, while fixed-income average daily revenue fell to $594k from $742k in 1Q26. FHN reiterated adjusted revenue-growth guidance of 3–7% for 2026. Holding Goldman Sachs’ NII assumptions constant, reaching the 5% midpoint would require double-digit core-fee growth and an FHN Financial ADR rebound to more than $1mn, which the report associates with rate cuts, a steeper yield curve, and greater banking-system liquidity. Expense discipline supports operating leverage. Adjusted expenses were $513mn in 2Q26, up 1.2% sequentially and 4.9% year-on-year, but FHN reiterated approximately flat 2026 adjusted-expense guidance. Management attributes this to completing a multiyear period of technology, risk, resolution-planning, and retention investments. Future spending is intended to favor revenue-facing initiatives, selective branch builds beginning with 5+ locations, and fit-for-purpose technology. Over the medium term, FHN expects inflationary expense growth if revenues continue to grow, which Goldman Sachs incorporates into its return framework. Capital is a significant potential upside lever. FHN ended 2Q26 with a 10.5% CET1 ratio, $100mn of quarterly share repurchases, $665mn remaining under its authorization, and a 10.0–10.5% intermediate-term CET1 target. Management believes a Basel III proposal could provide about a 10% RWA benefit and support operation at a 9–9.5% CET1 ratio economically, although it is unlikely to become a peer outlier. Goldman Sachs estimates that managing CET1 to 10.25% could free $951mn of capital. Assuming half is deployed into loans at a 3.15% spread and 35% incremental efficiency ratio, and half into buybacks in 2027–28, it estimates a cumulative $0.26, or 10%, benefit to 2028E EPS. Returns have already improved: 2Q26 ROTCE was 15.3%, about 20bp higher sequentially and about 170bp higher year-on-year, marking four consecutive quarters at roughly 15% or above. Goldman Sachs estimates a 16.1% medium-term ROTCE using mid-single-digit balance-sheet growth, a 3.47% NIM, low-single-digit expense growth, improved FHN Financial ADRs to a $750k run rate, core-fee growth, and continued repurchases with CET1 at 10.3%. Adding the modeled Basel III capital benefit raises estimated ROTCE to 17.6%. The report says FHN could consider raising its return target when it reports 4Q26 results in January if it sustains approximately 15%+ ROTCE through that quarter. Credit quality remains solid, according to management: nonperforming loans declined 13bp sequentially to 0.81%, criticized loans fell, and problem credits were largely idiosyncratic. Areas under monitoring include multifamily markets with heavy construction and slower absorption, as well as consumer-adjacent exposures. Management reported little to no deterioration and cited limited traditional non-depository-financial-institution exposure. M&A is not a priority while FHN executes its organic PPNR plan, but management remains open to small depository deals that add stable funding and branch density, potentially involving banks with $3–5bn of deposits or 7–10 branches. Goldman Sachs says FHN trades at about 11x 2027E EPS, in line with peers and below prior premium valuation levels associated with M&A optionality. Its $29 target is based 85% on fundamental valuation at 12.5x 2027E EPS and 15% on M&A value. The report believes a clearer return trajectory—estimated at 16%+ over time—and M&A optionality could allow the stock to regain a premium, but maintains a Neutral rating.

Analysis framework

Goldman Sachs combines management commentary with reported 2Q26 operating results, peer comparisons, and its own earnings, NII, capital, and ROTCE scenarios. It tests how loan and deposit trends affect margins, assesses the revenue required to meet guidance, and models the effects of PPNR initiatives, capital deployment, and potential Basel III RWA relief on EPS and returns.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Price-to-earnings valuation

  Goldman Sachs bases 85% of its $29 target price on fundamental valuation using 12.5x 2027E EPS; the remaining 15% reflects M&A value.

• Financial-sector metricsCapital Adequacy and RWA

  CET1 and risk-weighted-asset capital deployment analysis

  The report estimates how a potential 10% Basel III RWA benefit could release capital for incremental lending and share repurchases, affecting 2028E EPS and ROTCE.

• Financial-sector metricsNet Interest Margin (NIM) Analysis

  Net interest margin and funding-cost analysis

  The report decomposes NII and margin changes into loan growth, deposit costs, brokered funding, fixed-rate asset repricing, and mortgage-warehouse balances.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• First Horizon National Corp. (FHN)

  Primary covered company; profitability and return improvement depend on PPNR execution, loan growth, funding costs, and capital deployment.

  Strengths

  $100mn+ PPNR opportunity, constructive C&I and CRE outlook, flat 2026 expense guidance, improving ROTCE, and potential Basel III capital benefit.

  Weaknesses

  Fee-growth path to the midpoint of 2026 guidance requires strong capital-markets and ADR tailwinds; brokered deposits raise funding costs.

  Comparison

  Shares trade at about 11x 2027E EPS, in line with peers, but below prior premium valuation levels associated with M&A optionality.

  Risks

  Deposit competition could produce higher-than-expected deposit betas; weaker-than-expected margin expansion or loan growth would pressure outcomes.

Key data

• 2Q26 period-end loans$65.3bn+1.5% QoQ and +3.3% YoY
• 2Q26 period-end deposits$68.1bn+$1.6bn, or +2.4% QoQ and +3.8% YoY
• 2Q26 NII-FTE$676mn+1.3% QoQ and +5.3% YoY
• 2Q26 NIM3.49%Down 3bp QoQ; expected to normalize in the mid-to-high 3.40% range
• PPNR opportunity$100mn+Expected to be realized over two to three years
• 2Q26 CET1 ratio10.5%FHN targets 10.0%–10.5% over the intermediate term
• Potential Basel III EPS benefit$0.26 / 10% of 2028E EPSGoldman Sachs estimate based on a $951mn CET1 benefit and capital redeployment
• Medium-term ROTCE16.1%; 17.6% including modeled Basel III benefitGoldman Sachs scenario estimate
• 2Q26 ROTCE15.3%About +20bp QoQ and +170bp YoY

Impact & implications

The report argues that execution of the PPNR plan, sustained loan growth, disciplined expenses, and potential capital relief could lift FHN’s earnings and ROTCE over time. Nearer term, deposit competition, the pace of fee recovery, and the course of rates determine whether margin and revenue outcomes meet expectations.

Risks

• Deposit competition could drive deposit betas higher than expected.
• Margin expansion could be weaker than expected.
• Loan growth could be weaker than expected.
• Multifamily markets with heavy construction and slower absorption remain under monitoring.
• Consumer-adjacent exposures warrant monitoring as lower-income consumers reallocate spending and draw down savings.

What to watch

• Progress toward the $100mn+ PPNR opportunity over its two- to three-year realization period.
• C&I, CRE, mortgage-warehouse, and specialty-loan growth against FHN’s mid-single-digit full-year guide.
• Core-deposit growth, brokered-deposit usage, and normalized deposit costs.
• NIM performance against the mid-to-high 3.40% range and the expected 3Q26 decline followed by a 4Q26 rebound.
• FHN Financial ADR recovery and fee-income growth needed to meet 2026 revenue guidance.
• Basel III finalization, the potential RWA benefit, CET1 management, and incremental capital returns.
• Whether FHN sustains approximately 15%+ ROTCE through 4Q26 and considers raising its return target.