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First Horizon National Corp. (FHN - Analyst Report) reported fourth-quarter 2013 earnings per share of 21 cents, which came ahead of the Zacks Consensus Estimate as well as the year-ago figure of 17 cents.

For 2013, the company reported earnings per share of 10 cents compared to a loss of 11 cents in the prior year. Further, the reported figure beat the Zacks Consensus Estimate of 6 cents.

However, the earnings beat did little to gain investors’ confidence as the stock slipped around 2% in the pre-trading session. A stagnation in the top line growth due to low rates and weak consumer confidence is the main concern.

First Horizon’s results reflected lower-than-anticipated expenses on the back of prudent expense management. However, lower-than-expected revenues were a concern.

Net income available to common shareholders was $49.1 million, up 21% from the prior-year quarter. For 2013, net income was $23.5 million versus loss of $27.8 million in the prior year.

Quarter in Detail

Total revenue came in at $292.2 million, lagging the Zacks Consensus Estimate of $299.0 million. Moreover, revenues fell 8% from the year-ago quarter.

For 2013, total revenue was $1.2 billion, down 10% year over year but in line with the Zacks Consensus Estimate.

On a fully taxable equivalent basis, net interest income declined 8% year over year to $159.2 million. Net interest margin decreased 11 basis points (bps) year over year to 2.98%. Non-interest income slipped 12% from the prior-year quarter to $132.9 million.

Non-interest expense declined 4% from the prior-year quarter to $260.1 million.

Period-end loans declined 8% year over year to $15.4 billion. However, total deposits rose 1% to $16.7 billion as compared with the prior-year quarter.

Credit Quality

First Horizon’s credit quality metrics was a mixed bag in the reported quarter. Allowance for loan losses were down 8% year over year to $253.8 million. As a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.65%, down 1 basis point year over year.

Further, the company’s provision for loan losses remained stable year over year at $15 million. Net charge-offs fell 15% on a year-over-year basis to $16.9 million. As a percentage of average loans and on an annualized basis, net charge-offs were 0.44%, down from 0.48% reported in the year-ago quarter.

However, nonperforming assets rose 4% year over year to $435.0 million. As a percentage of period-end loans plus foreclosed real estate and other assets, nonperforming assets came in at 1.95%, up 11 basis points year over year.

Evaluation of Capital

First Horizon’s capital ratios remained at strong levels. Adjusted tangible common equity ratio to risk weighted assets was 10.31% versus 9.93% as of Dec 31, 2012. Moreover, book value per share came in at $8.92, compared with $9.09 in the prior-year quarter.

Our Viewpoint

First Horizon’s endeavors to lower its exposure to problem loans are impressive. It also aims to control costs and improve long-term profitability by focusing on strengthening its core Tennessee banking franchise. Moreover, share buybacks and the repurchase obligation settlement augur well going forward.

However, though winding down of the non-strategic part of First Horizon’s loan portfolio bodes well, it will remain a drag on the company earnings going forward. In addition to a shrinking revenue base, regulatory issues, a tepid economic recovery and low interest rate environment will challenge its performance.

Currently, First Horizon carries a Zacks Rank #3 (Hold). Among other Southeast banks, WesBanco Inc. (WSBC - Snapshot Report) is expected to announce third-quarter results on Jan 28, while BancorpSouth, Inc. (BXS - Analyst Report) and Customers Bancorp, Inc. (CUBI - Snapshot Report) are slated to release earnings on Jan 22 and Jan 23, respectively.

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