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First Horizon (FHN) Stock Down Despite Q3 Earnings Beat

Zacks Equity Research

First Horizon National Corporation FHN reported third-quarter 2019 adjusted earnings per share of 43 cents, which surpassed the Zacks Consensus Estimate by a penny. Further, the bottom line was 19% higher than the year-ago figure.

Results reflect First Horizon’s improved loan portfolio and lower expenses. In addition, efficiency ratio contracted during the quarter, indicating increased profitability.

However, shares of First Horizon declined 4% post earnings release, reflecting investors’ concern over lower net interest income and worsening credit quality.

After considering certain non-recurring items, net income available to common shareholders came in at $109.5 million, down 59% from the prior-year quarter.

Segment wise, quarterly net income for regional banking climbed 4% year over year to $132.7 million. Fixed income segment reported net income of $11.7 million, up significantly from year-ago quarter. Also, non-strategic segment reported income of $5.9 million, down 46%. Corporate segment incurred net loss of $36.3 million.

Revenues Decline, Loans Rise, Costs Fall

Total revenues for the third quarter came in at $472.4 million, down 28% on a year-over-year basis. However, the top line surpassed the Zacks Consensus Estimate of $464.8 million.

Net interest income for the reported quarter dipped 2% year over year to $300.7 million. Net interest margin shrunk 23 basis points (bps) to 3.21%. Also, non-interest income came in at $171.7 million, down 51%.

Non-interest expenses increased 5% year over year to $307.7 million.

Efficiency ratio was 65.14% compared with 66.55% in the year-ago quarter. It should be noted that a fall in the efficiency ratio indicates increase in profitability.

Total period-end loans, net of unearned income, totaled $31.3 billion, up 5% from the previous quarter. However, total period-end deposits were $31.9 billion, down 1%.

Credit Quality Worsens

Allowance for loan losses was up 4% year over year to $193.1 million. However, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.62%, down 6 bps year over year.

Nonetheless, the quarter witnessed net charge-offs of $14.6 million compared with $1.5 million in the prior-year quarter. In addition, non-performing assets increased 9% to $194.5 million. Also, during the quarter, the company recorded $15 million in provision for loan losses, up considerably from $2 million a year ago.

Capital Position

Common Equity Tier 1 ratio was 8.99% compared with 9.84% at the end of the year-earlier quarter. Additionally, total capital ratio came in at 10.99%, down from 12.02%.

Our Viewpoint

Continued growth in loans is likely to be conducive to First Horizon’s top-line performance. Further, improvement in the efficiency ratio is anticipated to support profitability. Also, prudent cost management supports bottom-line expansion. Nevertheless, rising provision for loan losses remains a drag.

First Horizon National Corporation Price, Consensus and EPS Surprise

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

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

Driven by top-line strength, U.S. Bancorp USB delivered a positive earnings surprise of 3.6% in third-quarter 2019. Earnings per share of $1.15 surpassed the Zacks Consensus Estimate of $1.11. Also, the reported figure jumped 8.5% from the prior-year quarter.

PNC Financial PNC pulled off positive earnings surprise of 5% in third-quarter 2019. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line reflects a 4.3% jump from the year-ago reported figure.

Comerica CMA reported third-quarter 2019 earnings per share of $1.96 that surpassed the Zacks Consensus Estimate of $1.91. Also, the bottom line was up from the prior-year quarter figure of $1.86.

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