First Horizon's Loan Growth on Track; Time to Hold? - Analyst Blog
On Aug 4, 2015, we issued an updated research report on First Horizon National Corporation FHN. Shares of this Tennessee-based bank gained around 20% year to date. We believe this growth story comes on the back of the company’s continued focus on loan growth, expense management and maintenance of a strong capital position.
Period-end loans, net of unearned income, increased 7% year over year to $16.9 billion during second-quarter 2015. Notably, the company has been witnessing persistent growth in loans over the past several quarters. Management sees continued overall loan growth in the upcoming quarters. It also remains optimistic about steady commercial loan growth during the second half of 2015.
We believe loan growth should aid in offsetting margin pressure to some extent. Notably, First Horizon expects net interest margin to come within the mid-280 bps in the second half of 2015, driven by growth in loans to mortgage companies. Loans to mortgage companies is expected to drive loan yields from the commercial loan volume in the third quarter owing to seasonality with the possibility of further increase in the fourth quarter of 2015.
Though expenses increased in the first half of 2015, the company remains committed towards expense management through process improvement, branch network optimization and other efficiencies along with lowering its corporate real estate footprint. Notably, the company remains focused on achieving savings of around $4 million from IT and loan operations by 2015.
Further, driven by a strong capital position, the company has been able to pursue its acquisition strategy and enhance shareholders value. In Jan 2015, First Horizon declared a 20% increase in its quarterly cash dividend. Additionally, the TrustAtlantic Financial Corp merger deal that was announced in Oct 2014 is expected to close by the end of third-quarter 2015.
Despite the positives, we remain cautious owing to several issues faced by First Horizon that pose a threat to the company’s financials. These include a shrinking revenue base with muted growth in interest income and fee income, lingering mortgage repurchase issues and the prevailing stringent regulatory landscape.
Over the past 30 days Zacks Consensus Estimate for 2015 advanced 2.5% to 83 cents per share while it declined marginally to 99 cents for 2016.
First Horizon currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the southeast banking space include Customers Bancorp, Inc. CUBI, Fidelity Southern Corporation LION and Atlantic Coast Financial Corporation ACFC. All these stocks sport a Zacks Rank #1 (Strong Buy).
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