On Sep 18, 2013, we maintained our Neutral recommendation on First Horizon National Corporation (FHN) primarily based on its prudent expense management and improved credit quality. However, lower top line and regulatory issues remain concerns.
First Horizon’s second-quarter earnings of 17 cents per share lagged the Zacks Consensus Estimate, but were well ahead of the year-ago loss of 50 cents. Lower non-interest expenses drove the results. However, pressure on revenue growth persisted due to decline in both net interest and non-interest income.
Despite the macroeconomic pressure, First Horizon’s credit quality continues to normalize. Credit metrics consistently improved in first half 2013 as the overall financial condition of businesses and consumers strengthened and the housing market improved in many areas. Going forward, we expect asset quality to improve with continuous reduction in problem assets.
We are also impressed with the company’s cost-control measures, which aided in improving bottom-line performance amid the sluggish macroeconomic environment. Moreover, we believe that the company’s solid capital levels will offer flexibility regarding capital deployment as well as other strategic acquisitions in Tennessee or its adjacent markets that will be accretive to growth.
However, First Horizon’s mortgage repurchase issues remain an overhang on its earnings. We are also concerned about the company’s top-line growth and margins, which continue to be impacted by the low rate environment. Additionally, regulatory issues are expected to limit the company’s flexibility with respect to business investments.
Over the last 60 days, the Zacks Consensus Estimate for 2013 declined 1.4% to 74 cents, while dipped 1.1% to 89 cents for 2014. As a result, First Horizon currently carries a Zacks Rank #4 (Sell).
Other Banks Worth Considering
Some better performing Southeast banks include WesBanco Inc. (WSBC), SY Bancorp Inc. (SYBT) and Simmons First National Corporation (SFNC). All these 3 banks carry a Zacks Rank #1 (Strong Buy).
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