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Our Neutral recommendation on First Horizon National Corp.’s (FHN - Analyst Report) is reaffirmed following a review of the company fundamentals, the current unsettled economic environment, a low interest rate atmosphere and regulatory changes.

First Horizon’s third-quarter 2011 earnings of 12 cents per share came below the Zacks Consensus Estimate of 16 cents, reflecting an increase in loan loss provisions.

However, results outpaced the prior quarter’s earnings of 6 cents per share and the prior-year quarter earnings of 7 cents. Results improved sequentially mainly due to an improved top line and better cost control. However, the increase in provision for loan losses was on the negative side.

Revenue for the quarter came in at $397.2 million, exceeding the Zacks Consensus Estimate of $358 million. The revenue figure also reported a 10% sequential increase, though a 7% year-over-year drop was recorded. Provision for loan losses was $32.0 million, up sequentially from $1.0 million, but down 36% year over year.

Concurrent to its earnings release, First Horizon also launched a program to repurchase up to $100 million of its common stock in the open market or in privately negotiated transactions, subject to market conditions, by the end of August 2012.

Going forward, we believe that First Horizon’s efforts to reduce its exposure to problem loans, control costs, boost capital levels and improve long-term profitability by focusing on growing its core Tennessee banking franchise are encouraging. Capital deployment initiatives are impressive.

Yet,  though the wind-down of the non-strategic part of the loan portfolio augurs  well, it  will remain a drag on the company's earnings going forward. A shrinking revenue base and regulatory issues remain our concern. Moreover, a sluggish economic recovery coupled with a low interest rate environment and mortgage exposure serves as headwind for the company’s results.

We believe that the risk-reward profile for First Horizon is currently balanced and hence, we have reaffirmed our Neutral recommendation on the shares. First Horizon retains its Zacks #2 Rank, which translates into a short-term Buy rating. Among First Horizon’s peers, First Citizens Bancshares Inc. retains a Zacks #3 Rank implying a Hold rating.

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