First Horizon (FHN) Q2 Earnings in Line, Expenses Flare Up
First Horizon National Corporation FHN reported second-quarter 2018 adjusted earnings per share of 36 cents, in line with the Zacks Consensus Estimate. The figure reflects an increase of 26.3% from the year-ago quarter.
Revenues improved from the prior-year quarter, supported by an expanded net interest margin. In addition, a considerable rise in loans and deposit balances was recorded. However, the bank’s net income declined on a year-over-year basis. Substantial rise in expenses and weakening of capital position were the key undermining factors. Further, efficiency ratio increased during the quarter.
Net income available to common shareholders for the quarter was $81.6 million, down 10% from the prior-year period.
Segment wise, fixed Income and corporate segments reported net losses of $0.4 million and $49.5 million, respectively. Also, net income for non strategic segment plummeted 58% to $6.6 million from the year-ago quarter. However, quarterly net income in the regional banking segment surged 78% year over year to $129.2 million.
Increase in Revenues Offset by Elevated Expenses
Total revenues for the quarter came in at $438.5 million, up 34% on a year-over-year basis. However, the figure lagged the Zacks Consensus Estimate of $448 million.
Net interest income for the quarter increased 55% year over year to $310.9 million. Net interest margin expanded 46 basis points to 3.53%. However, non-interest income decreased slightly to $127.5 million.
Non-interest expenses flared up 53% year over year to $332.8 million due to rise in almost all the components, except legal fees, amortization of intangible assets and other costs.
Efficiency ratio came in at 75.9% compared with 66.44% reported in the year-ago quarter. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.
Total period-end loans, net of unearned income, came in at $27.7 billion, up 2% from the previous quarter. However, total period-end deposits amounted to $31 billion, up 1% sequentially.
Credit Quality: A Mixed Bag
Allowance for loan losses was down 6% year over year to $185.5 million. The quarter witnessed net charge-offs of $1.7 million as against $2.7 million recorded in prior-year quarter. Also, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.67%, down 32 bps year over year.
However, non-performing assets increased 9% year over year to $157 million. Also, during the quarter, the company did not record any provision for loan losses compared to a credit of $2 million in the prior-year quarter.
Capital Position Weakens
Tier 1 common equity ratio was 8.95%, down from 9.85% at the end of the year-earlier quarter. Additionally, total capital ratio was 11.21%, down from 11.98% in year-ago quarter.
Our Viewpoint
Continued growth in loans, along with expansion of net interest margin, will likely supplement First Horizon’s top line. Furthermore, lower tax rates are expected to support its bottom-line growth. Nevertheless, elevated expenses and a deteriorating efficiency ratio continue to dampen the company’s financials.
First Horizon National Corporation Price, Consensus and EPS Surprise
First Horizon National Corporation Price, Consensus and EPS Surprise | First Horizon National Corporation Quote
First Horizon currently 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, BancorpSouth Bank BXS is scheduled to release first-quarter earnings on Jul 18, while Regions Financial Corp. RF and Trustmark Corp. TRMK will release their quarterly numbers on Jul 20 and Jul 24, respectively.
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