Why Is First Horizon (FHN) Down 5.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for First Horizon National (FHN). Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is First Horizon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

First Horizon Q1 Earnings Meet, Revenues Up

First Horizon reported first-quarter 2019 adjusted earnings per share of 35 cents, in line with the Zacks Consensus Estimate. Further, the reported figure comes in 2.9% higher than the year-ago tally.

Results benefited from higher non-interest income and lower expenses. In addition, the efficiency ratio contracted during the Jan-Mar quarter, indicating increased profitability. However, lower net interest income, rise in net charge-offs and provision for loan losses were the key undermining factors.

After considering certain non-recurring items, net income available to common shareholders for the quarter came in at $99 million, up 9.3% than the prior-year quarter.

Segment wise, quarterly net income in the regional banking segment declined 12.5% year over year to $111.7 million. Fixed income and non-strategic segments reported net income of $7.6 million each. The corporate segment, however, posted net loss of $23.4 million.

Revenues Decline, Costs Down

Total revenues for the first quarter came in at $435.6 million, slightly down on a year-over-year basis. However, the top-line figure surpassed the Zacks Consensus Estimate of $429.6 million.

Net interest income for the reported quarter dipped 2.2% year over year to $294.5 million. Net interest margin shrunk 12 basis points (bps) to 3.31%. However, non-interest income came in at $141 million, up 3.7% year over year.

Non-interest expenses slipped 5.5% year over year to $296.1 million.

Efficiency ratio came in at 67.99% compared with 71.67% witnessed 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, came in at $28 billion, up 1.7% from the previous quarter. However, total period-end deposits were $32.5 billion, down nearly 1% from fourth-quarter 2018.

Credit Quality

Allowance for loan losses was down 1.2% year over year to $184.9 million. Furthermore, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.66%, down 3 bps year over year.

Nonetheless, the quarter witnessed net charge-offs of $4.5 million compared with $1.4 million reported in the prior-year quarter. In addition, non-performing assets increased 20.2% year over year to $207.5 million. Also, during the quarter, the company recorded $9 million in provision for loan losses compared with a provision benefit of $1 million recorded in the year-ago quarter.

Capital Position

Tier 1 common equity ratio was 9.66%, up from 8.98% at the end of the year-earlier quarter. Additionally, total capital ratio was 11.82%, up from 11.25% in the prior-year quarter.

Outlook

In 2019, ROTCE is expected to be around 16% and return on assets to be around 1.15%. Further, common equity Tier 1 ratio is likely to be in 9.5-10% range. Also, NIM is projected to be around 3.30% and efficiency ratio is anticipated to be 62%. NCOs are expected to be less than 10 basis points. Additionally, the company expects loans and deposits to grow 3-6%.
 
The company expects 35-70% total payout ratio.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, First Horizon has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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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