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First Horizon (FHN) Up 8.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for First Horizon National (FHN). Shares have added about 8.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First Horizon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

First Horizon Q2 Earnings Miss Estimates on High Provisions

First Horizon reported second-quarter 2020 adjusted earnings per share of 20 cents, missing the Zacks Consensus Estimate of 21 cents. Further, the bottom line comes in 52.4% lower than the year-ago figure.

Results notably reflect First Horizon’s improved deposit balance and higher revenues. In addition, efficiency ratio contracted during the quarter, indicating increased profitability. However, rising expenses and provisions were major drags.

Net income available to common shareholders was $52.3 million or 17 cents per share, down from the $109.3 million or 35 cents per share recorded in the prior-year quarter.

Segment wise, quarterly net income for regional banking plunged 29% year over year to $91.5 million. Also, the non-strategic segment reported income of $0.8 million, significantly down 94% year over year. The fixed income segment’s net income of $33.1 million increased by a wide margin from the year-ago reported figure. The corporate segment incurred net loss of $68.7 million.

Higher Expenses Partly Offset Revenue Growth

Total revenues for the second quarter were $511.6 million, up 11% on a year-over-year basis. Also, the top line surpassed the consensus estimate of $478 million.

Net interest income for the reported quarter improved 1% year over year to $305.3 million. Net interest margin shrunk 44 basis points (bps) to 2.90%.

Non-interest income was $206.3 million, up 31% year over year. A rise in fixed income, bank-owned life insurance and other income mainly led to the upside.

Non-interest expenses flared up 11% year over year to $332.2 million. Rise in employee compensation, incentives, and benefits, FDIC premium expense and other expense primarily resulted in this upsurge.

Efficiency ratio was 64.74% compared with the year-ago quarter’s 65.08%. It should be noted that a fall in the efficiency ratio indicates increase in profitability.

Total period-end loans, net of unearned income, totaled $32.7 billion, down 2% from the previous quarter. However, total period-end deposits were $37.8 billion, up 10% sequentially.

Credit Quality: A Concern

Allowance for loan losses was $537.9 million, significantly up from $192.7 million in the prior-year quarter. In addition, non-performing assets increased 9% year over year to $245.4 million. Also, during the June-end quarter, the company recorded $110 million in provision for loan losses, up considerably from the year-ago quarter’s $13 million.

Further, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.64%, up 99 bps year over year. The quarter witnessed net charge-offs of $16.6 million compared with the prior-year quarter’s $5.2 million.

Capital Position

Common Equity Tier 1 ratio was 9.26% compared with the 9.25% witnessed at the end of the year-earlier quarter. Additionally, total capital ratio was 12.48%, up year over year from 11.34%. Leverage ratio was 8.56%, down 48 bps year on year.


Looking forward, management views the NIM compress further, possibly in the mid-teens range, primarily due to the addition of the Truist branches. Those branches will provide about $2 billion of additional excess funding, which will further improve the liquidity profile, loan and deposit ratio and profitability over time, but will temporarily depress the margin.

Management expects CET1 ratio to be in the low 9s in the third quarter.

Expected Merger-related Cost Saves & Expenses

  • $42.5 million run-rate by year-end (2020)

  • $127.5 million in-year savings (2021)

  • $170 million in-year savings (2022)

Targeted savings expected to come from personnel worth $120 million, $40 million from vendors and reduced occupancy expense worth $10 million.

Merger-related expenses are expected worth $440 million in categories including Professional Fees, Personnel (CIC, Severance, and Retention), Charitable Foundation, Contract Termination and Integration. Notably, in the third quarter, fourth quarter and 2021, expenses are expected to be $130 million, $40 million and $100 million, respectively. Around $50 million has been expensed by First Horizon and IBERIABANK in the last three quarters while purchase accounting is of around $120 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -28.39% due to these changes.

VGM Scores

Currently, First Horizon has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, First Horizon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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