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First Horizon (FHN) Gains on Q2 Earnings Beat, Expenses Down

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On Jul 14, First Horizon National Corporation (FHN - Free Report) reported second-quarter 2017 adjusted earnings per share of 27 cents, surpassing the Zacks Consensus Estimate by a penny. Further, the figure reflects an increase of 12.5% from the year-ago quarter.

Shares of First Horizon have gained 1.3% following its earnings release, owing to positive market sentiments and investors’ satisfaction with the improvement in net interest income and loans. Also, decline in expenses supported the results. Further, improving credit quality acted as a tailwind.

The reported earnings include impacts relating to mortgage repurchase reserve release, an adjustment associated with the reversal of a capital loss deferred tax valuation allowance and acquisition-related expenses.

Adjusted net income for the quarter was approximately $62.9 million, up 11% from the prior-year quarter.

Segment wise, quarterly net income at Regional Banking jumped 74% year over year to $72.7 million. Further, Corporate segment reported net income of $2.4 million against a net loss of $14.1 million in the prior-year quarter. Net income for Fixed Income amounted to $4.2 million, down 64% from the prior-year quarter. Also, the Non-Strategic segment recorded net income of $15.9 million, down 26% from the year-ago period.

Revenues Increase and Expenses Decline Slightly

Total revenue for the quarter came in at $328.4 million, up 2% on a year-over-year basis. However, the tally lagged the Zacks Consensus Estimate of $332.7 million.

Net interest income for the quarter increased 14% year over year to $200.7 million. Net interest margin of 3.07% was up 15 basis points (bps) from 2.92% in the prior-year quarter. However, non-interest income decreased 12% year over year to $127.3 million, primarily due to lower income in the Fixed Income segments and decline in bankcard income.

On the other hand, non-interest expenses decreased 4% year over year to $217.9 million, mainly due to lower legal fees, advertising and public relations, and other items.

Efficiency ratio came in at 66.4% compared with 70.5% in the year-ago quarter. A decline in the efficiency ratio indicates an improvement in profitability.

Total period-end loans, net of unearned income, came in at $20 billion, up 5% from the previous quarter. Total period-end deposits amounted to $22.3 billion, down 5% sequentially.

Credit Quality Improves

During the quarter, the company recorded a decline of $2 million in provision for loan losses as against an increase of $4 million in the prior-year quarter.

Further, allowance for loan losses was down 1% year over year to $197.3 million. As a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.99%, down 8 bps year over year.
Also, the quarter witnessed net charge-offs of $2.7 million, down 67% from the prior-year quarter. Non-performing assets declined 28% year over year to $144.1 million.

Capital Position Weakens

Tier 1 common equity ratio was 9.81%, down from 10.05% at the end of the prior-year quarter.

Our Viewpoint

Appreciable growth in loans, along with improvement in the company’s credit quality, will likely supplement First Horizon’s financial strength. Moreover, improving margins due to rising interest rates should continue to support its top line.

First Horizon’s acquisition of Capital Bank in the reported quarter reflects it focus on expansion through strategic initiatives. These efforts are expected to boost its profitability going forward.

First Horizon National Corporation Price and EPS Surprise

At present, First Horizon has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other Southeast banks, Hancock Holding Co. is scheduled to release second-quarter earnings on Jul 18 while Regions Financial Corp. (RF - Free Report) is scheduled to release on Jul 21. Trustmark Corp. (TRMK - Free Report) will release its earnings on Jul 25.

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