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Why Is First Horizon (FHN) Up 14.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for First Horizon National (FHN - Free Report) . Shares have added about 14.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First Horizon due for a pullback? 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 Q4 Earnings Beat Estimates, Revenues Fall

First Horizon reported fourth-quarter 2020 adjusted earnings per share of 46 cents, beating the Zacks Consensus Estimate of 33 cents. Further, the bottom line was 31.4% higher than the prior-quarter reported figure.

Results reflect First Horizon’s prudent expense management and improved deposit balance. In addition, credit quality improved with reduction in provisions. However, fall in revenues due to margin pressure and lower fee income was a major drag.

Including the impact of the IBERIABANK merger and purchase accounting gain, net income available to common shareholders was $234 million or 42 cents per share, down from the $523 million or 95 cents per share recorded in the prior quarter.

Segment wise, quarterly net income for regional banking increased sequentially to $186 million. Also, the specialty banking segment reported income of nearly $150 million, up 15%. The corporate segment incurred net loss of $92 million.

Lower Expenses Partly Offset by Revenue Decline, Loans Down

Total revenues for the fourth quarter came in at $810 million, plummeting 40% sequentially. The top line, however, surpassed the consensus estimate of $784 million. The prior quarter included certain one-time items in non-interest income.

Net interest income for the reported quarter decreased 2% sequentially to $522 million. Net interest margin shrunk 13 basis points (bps) to 2.71%.

Non-interest income was $288 million, down significantly quarter on quarter. On an adjusted basis, non-interest income edged down 1%. Fall in mortgage banking and fixed income mainly resulted in this decline.

Non-interest expenses were down 13% sequentially to $508 million. Yet, costs flared up 1% on an adjusted basis. Almost all the components witnessed a decline during the quarter.

Efficiency ratio was 62.71% compared with the prior quarter’s 43.31%. It should be noted that a rise in the efficiency ratio indicates decrease in profitability. Adjusted efficiency ratio was 58.57% compared with the prior quarter’s 57.26%

Total period-end loans, net of unearned income, totaled $58.2 billion, down 2% from the previous quarter. However, total period-end deposits were $47.8 billion, up 2% sequentially.

Credit Quality Improves

Credit metrics improved during the reported quarter. Allowance for loan losses of $963 million declined 2.5% sequentially. In addition, non-performing loans decreased to $386 million from $446 million. Also, during the December-ended quarter, the company recorded $1 million in provision for loan losses, down considerably from the prior quarter’s $227 million.

Further, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.65%, flat quarter on quarter. The fourth quarter witnessed net charge-offs of $29 million compared with the prior quarter’s $67 million.

Capital Position

Common Equity Tier 1 ratio was 9.67% at the end of the fourth quarter compared with the 9.21% reported at the end of the prior quarter. Additionally, total capital ratio was 12.55%, up from the previous quarter’s 12.05%. Tier 1leverage ratio was 8.24%, down 1 basis point (bp).


First-Quarter 2021

The company expects NII to decline in mid-single digit sequentially, reflecting lower net loan accretion or securities premium amortization and day count. Average earning assets are expected to increase slightly, with average loans down modestly.

Regarding fee income, management expects it to decline in mid-teens due to the impact of seasonality, partially offset by expectation for relatively strong environment for fixed income and mortgage banking

Non-interest expenses might fall by low to mid-single digits.

In the first quarter, net charge-offs are expected to be 20-30 bps.

Management expects to continue targeting a CET1 ratio of about 9.5% in the first quarter of 2021.

Full-Year 2021

The company expects low to mid-single digit decline in NII, given the outlook for muted loan growth and moderating impacts for net accretion.

Also, though management anticipates a continued relatively strong environment for mortgage and fixed income businesses, fee income is expected to fall by low teens percentage.

On the expense front, non-interest expense might be down in the low- to- mid-single digit range with results excluding incentives and commissions down in low-single digits. The company’s focus on efficiency and cost saves should result in an expense decline over the next year.

The range in provision expense could be significant and will depend on the forward outlook. The company expects net charge-off performance to be strong, in the range of 25-35 bps.

Finally, Tier CET1 ratio may come in around 9.5%, reflecting the expectation for risk weighted assets to be modestly lower and the potential to opportunistically repurchase shares over the course of the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 14.11% due to these changes.

VGM Scores

At this time, First Horizon has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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