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First Horizon (FHN) Q4 Earnings Beat Estimates, Revenues Fall

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First Horizon National Corporation FHN reported fourth-quarter 2020 adjusted earnings per share of 46 cents, beating the Zacks Consensus Estimate of 33 cents. Further, the bottom line comes in 31.4% higher than the prior-quarter reported figure.

Results reflect First Horizon’s prudent expense management and improved deposit balance. In addition, credit quality improved with reduction in provisions. However, fall in revenues due to margin pressure and lower fee income was a major drag.

Including the impact of the IBERIABANK merger and purchase accounting gain, net income available to common shareholders was $234 million or 42 cents per share, down from the $523 million or 95 cents per share recorded in the prior quarter.

Segment wise, quarterly net income for regional banking increased sequentially to $186 million. Also, the specialty banking segment reported income of nearly $150 million, up 15%. The corporate segment incurred net loss of $92 million.

Lower Expenses Partly Offset Revenue Decline, Loans Down

Total revenues for the fourth quarter came in at $810 million, plummeting 40% sequentially. The top line, however, surpassed the consensus estimate of $784 million. The prior quarter included certain one-time items in non-interest income.

Net interest income for the reported quarter decreased 2% sequentially to $522 million. Net interest margin shrunk 13 basis points (bps) to 2.71%.

Non-interest income was $288 million, down significantly quarter on quarter. On an adjusted basis, non-interest income edged down 1%. Fall in mortgage banking and fixed income mainly resulted in this decline.

Non-interest expenses were down 13% sequentially to $508 million. Yet, costs flared up 1% on an adjusted basis. Almost all the components witnessed a decline during the quarter.

Efficiency ratio was 62.71% compared with the prior quarter’s 43.31%. It should be noted that a rise in the efficiency ratio indicates decrease in profitability. Adjusted efficiency ratio was 58.57% compared with the prior quarter’s 57.26%

Total period-end loans, net of unearned income, totaled $58.2 billion, down 2% from the previous quarter. However, total period-end deposits were $47.8 billion, up 2% sequentially.

Credit Quality Improves

Credit metrics improved during the reported quarter. Allowance for loan losses of $963 million declined 2.5% sequentially. In addition, non-performing loans decreased to $386 million from $446 million. Also, during the December-end quarter, the company recorded $1 million in provision for loan losses, down considerably from the prior quarter’s $227 million.

Further, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.65%, flat quarter on quarter. The fourth quarter witnessed net charge-offs of $29 million compared with the prior quarter’s $67 million.

Capital Position

Common Equity Tier 1 ratio was 9.67% at the end of the fourth quarter compared with the 9.21% reported at the end of the prior quarter. Additionally, total capital ratio was 12.55%, up from the previous quarter’s 12.05%. Tier 1leverage ratio was 8.24%, down 1 basis point sequentially.

Our Viewpoint

First Horizon benefited from the completion of merger of equals with IBERIABANK during the October-December period. Also, reduction in expenses and provisions were tailwinds. Furthermore, improvement in the deposits balance highlights a solid capital position. Nevertheless, lower revenues are expected to impede bottom-line growth.

First Horizon Corporation Price, Consensus and EPS Surprise

First Horizon Corporation Price, Consensus and EPS Surprise
First Horizon Corporation Price, Consensus and EPS Surprise

First Horizon Corporation price-consensus-eps-surprise-chart | First Horizon Corporation Quote

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


Performance of Other Banks

Texas Capital Bancshares TCBI reported adjusted earnings per share of $1.14 in the fourth quarter, inching past the Zacks Consensus Estimate of $1.13. However, results compared unfavorably with the prior-year quarter’s $1.23. Rise in fee income and lower expenses were driving factors. Yet, fall in net interest income and pressure on margin, were deterrents. Further, results underlined decline in both loans and deposit balances. Moreover, provision for credit losses escalated.

First Republic Bank FRC delivered an earnings surprise of 5.3% in the October-December period on solid top-line strength. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.52. Additionally, the bottom line climbed 15.1% from the year-ago quarter. Results were supported by an increase in net interest income and fee income. Moreover, the company’s balance-sheet position was strong during the quarter. Nonetheless, higher expenses and elevated provisions were offsetting factors.

State Street’s STT fourth-quarter adjusted earnings of $1.69 per share outpaced the Zacks Consensus Estimate of $1.57. However, the figure came in 14.6% lower than the prior-year level. Results for the reported quarter reflected new investment servicing wins of $205 billion, improvement in fee income and lower expenses. Yet, a decline in net interest income mainly due to lower rates was a major headwind.

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