First Horizon (FHN) Gains on Q3 Earnings Beat, Revenues Down

First Horizon National Corporation FHN reported third-quarter 2017 adjusted earnings per share of 32 cents, surpassing the Zacks Consensus Estimate by 6.7%. Further, the figure reflects an increase of nearly 22% from the year-ago quarter.

Shares of First Horizon have gained marginally following its earnings release, owing to positive market sentiments and investors’ satisfaction with improvement in net interest income and loans. Also, no provision for loan losses supported the results. Further, improved capital position acted as a tailwind.

The reported earnings include impacts relating to legal matters, acquisition-related expenses and repurchase of equity securities previously included in a financing transaction. Earnings also include a positive effect from tax rate adjustment.

Net income available to common shareholders for the quarter was approximately $67.3 million, up 7% from the prior-year period.

Segment wise, quarterly net income at Regional Banking jumped 13% year over year to $73.4 million. Net income for Fixed Income segment amounted to $5.7 million, down 40% from the prior-year quarter. Also, the Non-Strategic segment recorded net income of $5.8 million, up 34% from the year-ago period. However, Corporate segment reported net loss of $13.1 million against a net loss of $11.3 million in the prior-year quarter.

Revenues Decline and Expenses Increase Slightly

Total revenues for the quarter came in at $322.2 million, down 3.4% on a year-over-year basis.

Net interest income for the quarter increased 13% year over year to $209.8 million. Net interest margin of 3.19% was up 23 basis points (bps) from 2.96% in the prior-year quarter. However, non-interest income decreased 24% year over year to $112.4 million, primarily due to a decline in fixed and insurance income.

Non-interest expenses increased 1% year over year to $236.9 million, mainly due to higher amortization of intangible assets, professional fees and other expenses.

Efficiency ratio came in at 73.5% compared with 69.9% in the year-ago quarter. A rise in the efficiency ratio indicates lower profitability.

Total period-end loans, net of unearned income, came in at $20.2 billion, up 1% from the previous quarter. Total period-end deposits amounted to $22.1 billion, down 1% sequentially.

Credit Quality: A Mixed Bag

During the quarter, the company recorded nil provision for loan losses as against $4 million in the prior-year quarter. Also, non-performing assets declined 19% year over year to $140.2 million.

Further, allowance for loan losses was down 3% year over year to $194.9 million. As a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.97%, down 6 bps.
However, the quarter witnessed net charge-offs of $2.4 million, up 6% from the prior-year quarter.

Strong Capital Position

Tier 1 common equity ratio was 10.03%, up from 9.81% at the end of the prior-year quarter. Also, total capital ratio was 12.16%, up 7 bps on a year-over-year basis.

Our Viewpoint

Continued growth in loans, along with improvement in the company’s capital position, will likely supplement First Horizon’s financial strength. Moreover, improving margins due to rising interest rates should continue supporting its top line.

However, pressure on First Horizon’s top line created by declining non-interest income due to poor performance of Corporate and Fixed income segments keeps us apprehensive.

First Horizon National Corporation Price and EPS Surprise

First Horizon National Corporation Price and EPS Surprise | First Horizon National Corporation Quote

At present, First Horizon has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other Southeast banks, Hancock Holding Co. HBHC is scheduled to release third-quarter earnings on Oct 17 while Regions Financial Corp. RF and Trustmark Corp. TRMK will release earnings on Oct 24.

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