Why Is First Horizon (FHN) Up 8.7% Since Last Earnings Report?
It has been about a month since the last earnings report for First Horizon National (FHN). Shares have added about 8.7% 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 catalysts.
First Horizon Q3 Earnings Beat, Revenues Decline Y/Y
First Horizon’s third-quarter 2023 adjusted earnings per share (excluding notable items) of 27 cents surpassed the Zacks Consensus Estimate of 25 cents. However, the figure declined 39% year over year.
Results were affected by lower net interest income (NII) and non-interest income. Also, higher provisions and rising expenses were undermining factors. Nonetheless, improving loan and deposit balances were tailwinds.
Net income available to common shareholders was $129 million, down 50% year over year.
Revenues Fall, Expenses Rise, Loans & Deposits Grow
Total revenues were $778 million, down 11% year over year. However, the top line missed the Zacks Consensus Estimate of $801.2 million.
NII declined 9% year over year to $605 million. Also, the net interest margin fell 21 basis points to 3.17%.
Non-interest income was $173 million, down 19% from the year-ago level.
Non-interest expenses rose 1% year over year to $474 million.
The efficiency ratio was 60.92%, down from the year-ago period’s 53.56%. A rise in the efficiency ratio indicates a fall in profitability.
Total period-end loans and leases, net of unearned income, were $61.7 billion, up 1% from the prior-quarter end. Total period-end deposits of $67 billion grew 2%.
Credit Quality Worsens
Non-performing loans and leases of $394 million increased 35% from the prior-year period. First Horizon witnessed net charge-offs of $95 million, which rose from the year-ago quarter’s $12 million.
Moreover, the provision for credit losses was $110 million compared with $60 million in the year-earlier quarter. As of Sep 30, 2023, the ratio of total allowance for loan and lease losses to loans and leases was 1.23%, up from 1.16% in the prior-year quarter.
The allowance for loan and lease losses of $760 million fell 14% from the year-ago period.
Capital Ratios Improve
As of Sep 30, 2023, the Common Equity Tier 1 ratio was 11.1%, up from 9.9% at the end of the year-ago quarter.
The total capital ratio was 13.6%, up from the prior-year quarter’s 13.1%. The tier 1 leverage ratio was 10.5%, up from 9.8% in the prior year.
2023 Outlook
Management expects average loans to rise 7-9%.
Adjusted NII (FTE) growth is expected to increase 6-9%.
Adjusted fee income is expected to decline 6-10%. The company projects stabilization in fixed income.
Adjusted expenses are expected to grow 6-8% due to increased investment in technology, marketing and personnel.
The net charge-off ratio is expected to be 25-35 bps.
The CET 1 ratio is expected to be 11-11.2%, assuming no share buybacks.
The effective tax rate is expected to be 20-22%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, First Horizon has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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First Horizon Corporation (FHN) : Free Stock Analysis Report
