First Horizon plans technology expansion for 2025 | PaymentsSource

This story has been updated with executive and analyst commentary.

First Horizon Bank’s strategic detour following the cancelled TD Bank acquisition has included a major technology investment, sparking a strategy that will enter a new phase in the coming months.

The bank has set aside $100 million to upgrade a variety of systems over a three year period that began after First Horizon moved on as a standalone company. First Horizon was preparing to consolidate with TD Bank when that deal was called off in 2023.

That required a shift on its internal systems and product development strategy to stay relevant with bank technology trends. The bank is trying to accomplish that while containing expenses in an uncertain rate and regulatory environment.

“$100 billion was a big ask. But our projects got done on time and we’re now able to focus more on customer-facing enhancements,” said Hope Dmuchowski, chief financial officer at First Horizon, in an interview Thursday. 

Inside out

While the bank spent most of the past year improving the technology that powers its general ledger and treasury management systems, it’s looking to add innovation that will be more noticeable to the public. This includes a pipeline of projects in the next year that will enhance mobile and online banking, two key areas for banks to make improvements given the encroachment of fintechs into financial services. “Anytime you implement something you look at [competitors] to see what they are doing,” Dmuchowski said. 

The general ledger project has already been completed. That will not help the bank’s clients do business with it any better or generate any revenue, Dmuchowski said. But she adds it was a major project to improve operations and it followed an earlier decision to convertIberia Bank’s primary client system to First Horizon. That came after First Horizon acquired Iberia in 2020 and before TD Bank’s failed plan to acquire First Horizon.

“It’s been quite a few years,” Dmuchowski said. While the initial projects were mostly internal or unrelated to specific consumer products, they did help the bank become more flexible in terms of managing workflow, Chairman, President and Chief Executive Officer Bryan Jordan said during Thursday’s earnings conference call with analysts. 

“Our teams did a lot of heavy lifting and did a good job in closing the deferred maintenance gap,” Jordan said.”We can now be more forward-looking.”

Containing costs

The challenge to First Horizon after the TD deal fell through was to boost its technology spending while increasing interest rates for interest bearing accounts to entice new customers, both moves that could stress the balance sheet.

A special interest rate offer boosted the bank’s interest-bearing deposits by more than 4% in less than six months following the cancelled TD deal in 2023. The bank then began to lower the special rates, which expired on June 30, 2023, while it attempted to cross sell-products to the new consumers. The bank retained more than 90% of its customers and staff in the year that followed. 

Deeper reductions in those rates will depend on the pace of Federal Reserve rate cuts. These cuts are expected to slow in 2025 as economic growth remains strong and inflation remains above the Fed’s 2% target. First Horizon executives suggested the pace of reducing deposit costs may slow in the coming year. 

“We made progress in the third and fourth quarter and want to optimize the cost of deposits and are also looking to defend that deposit base,” Jordan said during Thursday’s earnings call.

It’s really hard to predict what we think will happen with competition regarding lower interest rates, Dmuchowki said, adding she anticipates First Horizon will continue to “walk back” its rates.

“We’re going to continue to be disciplined in bringing in new bank clients,” she said under analyst questioning during the earnings call. “For the last two years, we’ve shown that we can bring in new bank clients early in the year, retain them at 90% plus and walk back rates.”

First Horizon is also about halfway through its three-year technology initiative, but the pace of completed projects and the pipeline should not add to the bank’s expenses beyond what it has already reported, Dmuchowski said. 

Inside the financials

For the three months ended Dec. 31, the bank posted net income available to common shareholders of $158 million, or earnings per share of  29 cents, a share, down from $183 million, or 31 cents a share, a year ago. Excluding notable items, adjusted fourth quarter 2024 NIAC of $228 million or $0.43 per share increased from $224 million or $0.42 per share in third quarter 2024. 

Revenue totaled $729 million, down 9% from a year ago.  EPS beat Wall Street forecasts. Analysts polled by S&P had expected earnings of 39 cents a share on revenue of $821.9 million.

Fourth quarter 2024 results were reduced by a net $71 million after-tax or $0.13 per share of notable items compared with $11 million or $0.02 per share in third quarter 2024.  

First Horizon additionally reported net interest income rose 2% to $630 million while noninterest income fell 46% to $99 million after the portfolio restructuring.

First Horizon’s net interest margin rose six basis points to 3.33%, in part due to lower interest-bearing deposit costs and payoff of brokered CDs. Those gains were partially offset by the impact of lower short-term rates on loan yields, the bank said.Looking ahead, First Horizon expects continued credit normalization in 2025, with net charge-offs of 0.15% to 0.25%. In 2024, net charge-offs were 0.18%.

The recovery strategy that includes new technology and the customer acquisition campaign thus far has been a winner with investors. First Horizon’s stock increased from about $13 per share to about $21 per share during 2024, approaching its late 2022 high of $24 per share just before the TD deal fell through.

First Horizon’s stock on the New York Stock Exchange closed at $21.30 Thursday, down .42% for the day.  In premarket trade on the New York Stock Exchange on Thursday, the stock was down about 4.2% at $20.50.

“It was a solid quarter with better net interest income trends (+0.5% q/q) net interest margin NIM +2bps), which was supported by aggressive deposit repricing, which more than offset downward loan repricing,” said KBW in a research note after the earnings report. 

KBW recently upgraded First Horizon to outperform from market perform, adding the bank had shown that it will “do right” by its shareholders, even if it is not for sale.