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First Horizon (FHN) Stock Slips as Q4 Earnings Lag Estimates

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Shares of First Horizon National Corporation (FHN - Free Report) declined 1.9% following its fourth-quarter 2016 earnings release on Jan 13. The company posted earnings per share of 23 cents for the quarter, which lagged the Zacks Consensus Estimate of 25 cents. However, the figure represents an increase of 15% over the year-ago quarter.

Lower-than-expected results were primarily because of a fall in non-interest income. The company also experienced poor capital ratios. However, higher net interest income, along with lower expenses, acted as a tailwind. Growth in loans and deposits and an improvement in credit quality were other positives for the company.

Net income for the quarter amounted to approximately $57.7 million, up 12% from the prior-year quarter.

Net income for the full year came in at $238.5 million, up significantly year over year. Further, the company posted earnings per share of 94 cents for 2016, up from 34 cents recorded in the prior year. The reported figure also surpassed the Zacks Consensus Estimate of 93 cents.

Segment-wise, quarterly net income at Regional Banking jumped 24% year over year to $63.1 million. Meanwhile, net income for Fixed Income amounted to $4 million, down 45% from the prior-year quarter. However, net loss at the Corporate segment totaled $12.3 million compared with a net loss of $3.8 million in the prior-year quarter. Also, the Non-Strategic segment recorded net income of $2.9 million, while in the year-ago period, this segment had incurred a net loss of $2.8 million.
 

Revenues Improve & Expenses Decline Slightly

Total revenue for the quarter came in at $319.6 million, up 7% year over year, thanks to an increase in net interest income. However, the revenue tally lagged the Zacks Consensus Estimate of $335 million.

For 2016, revenues  came in at $1.3 billion, up 9% year over year. Moreover, the figure was almost in line with the Zacks Consensus Estimate for the year.

Net interest income for the quarter increased 17% year over year to $195.6 million. Net interest margin of 3% was up 18 basis points (bps) from the prior-year quarter’s figure of 2.82%. However, non-interest income decreased 6% year over year to $124.1 million, primarily due to lower income in the Fixed Income and Corporate segment.

On the other hand, non-interest expenses decreased 2% year over year to $237.9 million, mainly due to lower contract employment and outsourcing expense, expenses for communications, courier and other items.

Efficiency ratio came in at 74.4%, compared to 81.9% in the year-ago quarter. Note that a decline in the efficiency ratio indicates an improvement in profitability.

Total period-end loans, net of unearned income, came in at $19.6 billion, up marginally from the previous quarter. Also, total period-end deposits amounted to $22.7 billion, up 5.1% sequentially.

Credit Quality Improved

During the quarter, the company did not record any provision for loan losses, compared with a provision of $1 million recorded in the prior-year quarter.

Further, allowance for loan losses was down 4% year over year to $202.1 million. As a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.03%, down 16 basis points (bps) year over year.

Also, the quarter witnessed net recoveries of $0.5 million, compared to net charge-offs of $1.6 million in the prior-year quarter. Non-performing assets too dropped 22% year over year to $164.6 million.

Deterioration in Capital Ratios

Tier 1 common equity ratio was 9.94%, down from 10.45% at the end of the prior-year quarter.

Our Viewpoint

First Horizon remains focused on various strategic initiatives like restructuring, expansion and cost control. These efforts are expected to boost the company’s profitability going forward. Moreover, the Oct 2016 agreement to acquire Coastal Securities is expected to be accretive to earnings. Further, appreciable growth in loans and deposits, along with improvement in the company’s credit quality, will likely supplement its financial strength. Also, steady capital deployment will help boost investors’ confidence in the stock.
 

First Horizon National Corporation Price, Consensus and EPS Surprise
 

First Horizon National Corporation Price, Consensus and EPS Surprise | First Horizon National Corporation Quote

 At present, First Horizon sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Among other Southeast banks, Hancock Holding Co. is scheduled to release fourth-quarter earnings on Jan 17, Regions Financial Corp. (RF - Free Report) on Jan 20 and Trustmark Corp. (TRMK - Free Report) on Jan 24.

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