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Regional Banks - FHN & CFG - Poised for Solid Performance in 2025
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With 2024 ending in two weeks, investors are concerned about how the changing operating environment will affect banks in 2025. In sync with this, two regional banks -- First Horizon Corp. (FHN - Free Report) and Citizens Financial Group (CFG - Free Report) – issued upbeat 2025 expectations at the Goldman Sachs 2024 U.S. Financial Services Conference yesterday.
Before discussing the banks’ guidance, let’s briefly examine what the operating environment will be like.
The Federal Reserve has started lowering interest rates and this is expected to continue in 2025. So, as the rates keep coming down, deposit/funding costs will stabilize and eventually start falling. Thus, this will support banks’ net interest income (NII) and net interest margin (NIM).
Additionally, the lending landscape is expected to improve. This, along with robust economic growth, should increase demand for loans next year. There are also expectations of deregulation from the new administration, such as less stringent capital requirements, which would free up cash.
These factors have turned investors bullish on bank stocks.
First Horizon’s Encouraging 2025 Outlook
FHN has navigated various economic cycles through organic growth and strategic acquisitions, maintaining capital levels above well-capitalized thresholds to support growth and flexibility, and consistently achieving mid-teen returns in past years despite fluctuations in interest rates.
Continuing with its growth efforts, First Horizon projects adjusted 2025 revenues to be flat to up 4% on the assumptions of 25 basis point cut interest rates this month and next year in March, May and September. Further, the company expects modest balance sheet growth. This year, management expects revenues to be flat to up 2% from $3.25 billion in 2023.
Further, for 2025, non-interest expenses (adjusted and excluding deferred compensation) are expected to rise in the 2-4% range. For 2024, the metric is projected to increase 4-6% from $1.88 billion in 2023 due to higher investments in technology, personnel and revenue-driven incentives.
As the operating backdrop keeps improving, FHN’s 2025 net charge-offs (NCOs) are anticipated to be in the 0.15-0.25% range, reflecting the benefits of declining interest rates and “credit normalization.” NCOs, for 2024, are expected to be between 0.25% and 0.30%.
Thus, First Horizon’s well-diversified business model will support its financials in 2025.
2025 to Be Solid for Citizens Financial
CFG is implementing unique initiatives aimed at achieving medium-term outperformance. Aligning with this, the company is building a premier Wealth and Private Bank franchise, which is expected to drive growth next year.
Management anticipates Citizens Private Bank to be profitable in the current quarter after breaking even in the third quarter of 2024. Further, the division is expected to contribute almost 5% of the company’s earnings in 2025. Driving the growth in the division is the expansion of presence in regions, including San Francisco, San Diego and Newport Beach, CA, as well as Boston and New York City.
Additionally, the company’s Consumer Bank segment has been transformed, showing strong deposit growth and Wealth revenue potential, particularly in the NYC metro area, where it is well-positioned to expand market share. Further, the Commercial Bank segment is well prepared to support private capital and high-growth sectors of the U.S. economy.
Citizens Financial remains committed to operating and financial discipline. Its “Tapping Our Potential” or TOP 9 program is progressing well, and it is planning to launch the TOP 10 program. Under the TOP 9 program, the company targets a pre-tax exit run rate benefit of around $135 million by 2024-end.
Driven by such efforts and initiatives, CFG is projected to witness a significant NII tailwind from non-core strategy and swaps. The company targets NIM to be in the range of 3.25% to 3.40% over the medium term.
Our Take on FHN & CFG
As the operating environment becomes increasingly favorable for banking institutions, First Horizon and Citizens Financial are poised for impressive performance ahead.
In the year-to-date period, shares of FHN and CFG have soared 42.4% and 40%, respectively, while the Zacks Finance sector has rallied 22.2%.
Image: Bigstock
Regional Banks - FHN & CFG - Poised for Solid Performance in 2025
With 2024 ending in two weeks, investors are concerned about how the changing operating environment will affect banks in 2025. In sync with this, two regional banks -- First Horizon Corp. (FHN - Free Report) and Citizens Financial Group (CFG - Free Report) – issued upbeat 2025 expectations at the Goldman Sachs 2024 U.S. Financial Services Conference yesterday.
Before discussing the banks’ guidance, let’s briefly examine what the operating environment will be like.
The Federal Reserve has started lowering interest rates and this is expected to continue in 2025. So, as the rates keep coming down, deposit/funding costs will stabilize and eventually start falling. Thus, this will support banks’ net interest income (NII) and net interest margin (NIM).
Additionally, the lending landscape is expected to improve. This, along with robust economic growth, should increase demand for loans next year. There are also expectations of deregulation from the new administration, such as less stringent capital requirements, which would free up cash.
These factors have turned investors bullish on bank stocks.
First Horizon’s Encouraging 2025 Outlook
FHN has navigated various economic cycles through organic growth and strategic acquisitions, maintaining capital levels above well-capitalized thresholds to support growth and flexibility, and consistently achieving mid-teen returns in past years despite fluctuations in interest rates.
Continuing with its growth efforts, First Horizon projects adjusted 2025 revenues to be flat to up 4% on the assumptions of 25 basis point cut interest rates this month and next year in March, May and September. Further, the company expects modest balance sheet growth. This year, management expects revenues to be flat to up 2% from $3.25 billion in 2023.
Further, for 2025, non-interest expenses (adjusted and excluding deferred compensation) are expected to rise in the 2-4% range. For 2024, the metric is projected to increase 4-6% from $1.88 billion in 2023 due to higher investments in technology, personnel and revenue-driven incentives.
As the operating backdrop keeps improving, FHN’s 2025 net charge-offs (NCOs) are anticipated to be in the 0.15-0.25% range, reflecting the benefits of declining interest rates and “credit normalization.” NCOs, for 2024, are expected to be between 0.25% and 0.30%.
Thus, First Horizon’s well-diversified business model will support its financials in 2025.
2025 to Be Solid for Citizens Financial
CFG is implementing unique initiatives aimed at achieving medium-term outperformance. Aligning with this, the company is building a premier Wealth and Private Bank franchise, which is expected to drive growth next year.
Management anticipates Citizens Private Bank to be profitable in the current quarter after breaking even in the third quarter of 2024. Further, the division is expected to contribute almost 5% of the company’s earnings in 2025. Driving the growth in the division is the expansion of presence in regions, including San Francisco, San Diego and Newport Beach, CA, as well as Boston and New York City.
Additionally, the company’s Consumer Bank segment has been transformed, showing strong deposit growth and Wealth revenue potential, particularly in the NYC metro area, where it is well-positioned to expand market share. Further, the Commercial Bank segment is well prepared to support private capital and high-growth sectors of the U.S. economy.
Citizens Financial remains committed to operating and financial discipline. Its “Tapping Our Potential” or TOP 9 program is progressing well, and it is planning to launch the TOP 10 program. Under the TOP 9 program, the company targets a pre-tax exit run rate benefit of around $135 million by 2024-end.
Driven by such efforts and initiatives, CFG is projected to witness a significant NII tailwind from non-core strategy and swaps. The company targets NIM to be in the range of 3.25% to 3.40% over the medium term.
Our Take on FHN & CFG
As the operating environment becomes increasingly favorable for banking institutions, First Horizon and Citizens Financial are poised for impressive performance ahead.
In the year-to-date period, shares of FHN and CFG have soared 42.4% and 40%, respectively, while the Zacks Finance sector has rallied 22.2%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
At present, FHN and CFG carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.