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First Horizon (FHN) Up 5.4% as Q1 Earnings Beat Estimates

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Shares of First Horizon National Corporation (FHN - Free Report) rallied 5.4% following the release of first-quarter 2021 results. Adjusted earnings per share of 51 cents beat the Zacks Consensus Estimate of 37 cents. Further, the bottom line shows significant improvement from the prior-year quarter’s 5 cents.
 

Results benefited from growth in revenues and provision benefits, partly offset by higher expenses. Moreover, loan balance climbed during the quarter. However, pressure on margin due to low interest rates is a concern.

Net income available to common shareholders (GAAP basis) was $225 million or 40 cents per share, up significantly from the $12 million or 4 cents per share recorded in the prior-year quarter.

Segment wise, net income for regional banking increased to $220 million. Also, the specialty banking segment reported net income of $149 million, up significantly from the year-ago quarter. Yet, the corporate segment incurred net loss of $133 million.

Revenues Improve, Expenses Rise

Total revenues came in at $806 million, up 69% year over year. Further, the top line surpassed the consensus estimate of $770.6 million.

Net interest income jumped 68% year on year to $508 million. However, net interest margin shrunk 53 basis points (bps) to 2.63%.

Non-interest income was $298 million, surging 71% from the year-ago level. Increase in all the components resulted in this rise. On an adjusted basis, non-interest income soared 70%.

Non-interest expenses climbed 80% year over year to $544 million. All expense components witnessed a rise during the quarter. Costs flared up 57% on an adjusted basis.

Efficiency ratio was 67.53% up from the year-ago period’s 63.26%. It should be noted that a rise in the efficiency ratio indicates decrease in profitability. However, adjusted efficiency ratio was 57.49% compared with the prior-year quarter’s 61.76%.

Total period-end loans and leases, net of unearned income, totaled $58.6 billion, up 1% from the prior quarter’s end. Total period-end deposits of $47.7 billion remained flat.

Credit Quality Deteriorates

Allowance for loan losses of $914 million increased significantly from the year-ago period’s $444 million. In addition, non-performing loans and leases of $394 million grew substantially from the $190 million recorded in the prior-year period.

Further, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.56%, up 23 bps from the previous-year quarter.

The first quarter witnessed net charge-offs of $8 million, up 14% from the prior-year quarter. However, provision for loan losses was a benefit of $45 million against the provision of $154 million seen in the prior-year quarter.

Capital Ratios Mixed

As of Mar 31, 2021, common Equity Tier 1 ratio was 9.96%, up from the 8.54% reported at the end of the year-earlier quarter. Additionally, total capital ratio was 12.83%, up from the previous-year quarter’s 10.78%. Tier 1 leverage ratio was 8.20%, down 4 basis point year on year.

Our Viewpoint

First Horizon continues to benefit from rising loan and deposit balances. Also, the company’s inorganic expansion efforts support financials. Nevertheless, mounting expenses and near-zero interest rates remain major concerns.

First Horizon Corporation Price, Consensus and EPS Surprise

First Horizon Corporation Price, Consensus and EPS Surprise

First Horizon Corporation price-consensus-eps-surprise-chart | First Horizon Corporation Quote

First Horizon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 16.2% in first-quarter 2021 on solid top-line strength. Earnings per share of $1.79 surpassed the Zacks Consensus Estimate of $1.54. Additionally, the bottom line climbed 53.1% from the year-ago quarter.

Zions Bancorporation’s (ZION - Free Report) first-quarter 2021 net earnings per share of $1.90 beat the Zacks Consensus Estimate of $1.15. Also, the bottom line marked a significant improvement from the 4 cents earned in the year-ago quarter.

Webster Financial (WBS - Free Report) recorded first-quarter 2021 adjusted earnings per share of $1.25, which topped the Zacks Consensus Estimate of 89 cents. The figure excluded noteworthy items such as charges related to strategic optimization initiatives.

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