On Jun 24, 2013, we reiterated our Neutral recommendation on
First Horizon National Corporation
) primarily based on its improved credit quality metrics.
However, declining revenues were the downside.
First Horizon's first-quarter earnings of 17 cents per share were
in line with the Zacks Consensus Estimate, but beat the
prior-quarter earnings by 42%. Lower non-interest expenses,
reflecting the company's prudent expense management, drove the
results. However, pressure on revenue growth persisted due to
decline in both net interest and non-interest income. Further,
higher provision for credit losses was a dampener.
Over the last 30 days, the Zacks Consensus Estimate for 2013 as
well as for 2014 remained stable at 78 cents and 90 cents,
respectively. As a result, First Horizon currently carries a
Zacks Rank #3 (Hold).
Despite the macroeconomic pressure, First Horizon's credit
quality continues to normalize. Credit metrics consistently
improved in 2012 as the overall financial condition of businesses
and consumers strengthened and the housing market improved in
many areas. Going forward, we expect asset quality to improve
with continuous reserve releases.
We are also impressed with the company's cost-control measures,
which have aided in improving bottom-line performance amid the
sluggish macroeconomic environment. Moreover, we believe that the
company's solid capital levels will offer flexibility regarding
capital deployment as well as other strategic acquisitions in
Tennessee or its adjacent markets that will be accretive to
However, First Horizon's mortgage repurchase issues remain an
overhang on its earnings. We are also concerned about the
company's top-line growth and margins, which continue to be
impacted by the low rate environment and sluggish economic
Further, First Horizon's significant exposure to problem loan
categories, such as industrial and commercial mortgage, is
another problem. Additionally, regulatory issues will limit the
company's flexibility with respect to business investments.
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