Why Is First Horizon (FHN) Down 0.6% Since Last Earnings Report?
It has been about a month since the last earnings report for First Horizon National (FHN). Shares have lost about 0.6% in that time frame, outperforming 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 catalysts.
First Horizon's Q2 Earnings Top Estimates, Revenues Rise
First Horizon’s second-quarter 2023 adjusted earnings per share (excluding notable items) of 39 cents surpassed the Zacks Consensus Estimate of 38 cents. The figure also improved 14.7% year over year.
Results benefited from higher NII and non-interest income. Also, improving loan and deposit balances were tailwinds. However, higher provisions and rising expenses were undermining factors.
After considering notable items, net income available to common shareholders was $317 million or 56 cents per share, up from $166 million or 29 cents per share in the prior-year quarter.
Revenues & Expenses Rise, Growth in Loans & Deposits
Total revenues were $1.03 billion, up 38.8% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $820.2 million.
NII increased 16.4% year over year to $631 million. Also, the net interest margin expanded 64 basis points to 3.38%.
Non-interest income was $400 million, surging 99%.
Non-interest expenses rose 13.5% to $555 million.
The efficiency ratio was 53.87%, down from the year-ago period’s 65.76%. A fall in the efficiency ratio indicates an increase in profitability.
Total period-end loans and leases, net of unearned income, were $61.3 billion, up 3.8% from the prior quarter’s end. Total period-end deposits of $65.43 billion grew 6.5%.
Credit Quality Worsens
Non-performing loans and leases of $402 million increased 33.5% from the prior-year period's levels. First Horizon witnessed net charge-offs of $23 million, which rose from the year-ago quarter’s $12 million. Moreover, provisions for credit losses were $50 million compared with $30 million in the year-earlier quarter.
The allowance for loan and lease losses of $737 million increased 18.1%. As of Jun 30, 2023, the ratio of total allowance for loan and lease losses to loans and leases was 1.20%, up from 1.10% in the prior-year quarter.
Capital Ratios Improves
As of Jun 30, 2023, the Common Equity Tier 1 ratio was 11.1%, up from 9.8% at the end of the year-ago quarter.
The total capital ratio was 13.6%, up from the prior-year quarter’s 13%. Tier 1 leverage ratio was 10.5%, up from 9.1% in the prior year.
2023 Outlook
Management expects average loans to be up 3-5%, with growth moderating in the second half of the year.
Adjusted NII (FTE) growth is expected to increase 6-9% on the assumption of 25 basis points increase in Fed Fund rates in the third quarter.
Adjusted fee income is expected to be down 6-10%. The company projects modest improvement in fixed income in the second half.
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 in the range of 15-25 bps.
The CET 1 ratio is expected to be 11.25-11.75%, assuming no share buybacks and low-single digit growth in risk-weighted assets from the first quarter 2023 level.
The effective tax rate is expected to be 20-22%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, First Horizon has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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
