Why Is First Horizon (FHN) Down 5% Since Last Earnings Report?
It has been about a month since the last earnings report for First Horizon National (FHN). Shares have lost about 5% 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 drivers.
First Horizon Q1 Earnings Beat, Revenues Decline Y/Y
First Horizon’s first-quarter 2022 adjusted earnings per share of 38 cents beat the Zacks Consensus Estimate of 34 cents. However, the figure declined 25% year over year. Results excluded after-tax impacts of 4 cents per share from notable items related to the IBERIABANK and TD-Bank merger transactions.
Results reflect higher loan balance, provision benefits and declining expenses. However, declines in net interest income (NII) and fee income affected revenues. Also, pressure on margin due to low interest rates was a spoilsport.
Net income available to common shareholders was $187 million, down 17% year over year.
Revenues & Expenses Fall, Loans Climb
Total revenues were $707 million, down 12% year over year. Nonetheless, the top line outpaced the consensus estimate of $704.4 million.
NII declined 6% year over year to $479 million. Also, the NIM shrunk 25 basis points to 2.37%.
Non-interest income was $229 million, declining 23% from the year-ago level.
Non-interest expenses declined 9% year over year to $493 million.
The efficiency ratio was 69.66%, up from the year-ago period’s 67.53%. A rise in the efficiency ratio indicates a decrease in profitability.
Total period-end loans and leases, net of unearned income, were $55.01 billion, up marginally from the prior quarter’s end. Total period-end deposits of $74.11 billion decreased 1% from the prior quarter.
Credit Quality Deteriorates
Non-performing loans and leases of $332 million declined 16% from the prior-year period. Further, as a percentage of period-end loans on an annualized basis, the allowance for loan losses was 1.33%, down from 1.56% in the previous-year quarter.
The provision for credit losses was a benefit of $40 million compared with a benefit of $45 million in the prior-year quarter. The first quarter witnessed net charge-offs of $10 million, increasing from the prior-year quarter’s $8 million. Also, the allowance for loan and lease losses of $622 million increased 32% from the year-ago period.
Capital Position Mixed
Tier 1 leverage ratio was 8.8%, up from 8.2% in the prior year. As of Mar 31, 2022, the Common Equity Tier 1 ratio was 10%, flat from the year-earlier quarter.
However, the total capital ratio was 13.2%, down from the previous-year quarter’s 12.8%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, First Horizon has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 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 this revision has been net zero. Notably, First Horizon has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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