First Horizon National Corp.
) has returned to profit in the third quarter of 2012 by
reporting earnings per share of 10 cents, after reporting a loss
in the prior quarter.
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However, the third quarter results included the negative impact
of 7 cents per share from regulatory guidelines issued of late on
consumer loans and missed the Zacks Consensus Estimate of 18
cents per share. While the pressure on revenue growth continued,
expenses were down both sequentially and year over year, which
First Horizon reported net income available to common
shareholders of $25.8 million or 10 cents per share in the
reported quarter, compared with a loss of $124.8 million or 50
cents per share in the prior quarter and a net income of $36.1
million or 12 cents per share from continuing operations in the
year-ago quarter. Notably, increase in reserves for
government-sponsored entities mortgage repurchases resulted in
First Horizon reporting a loss in the prior quarter.
Revenue came in at $337.0 million, slightly below the Zacks
Consensus Estimate of $339 million. The revenue figure advanced
2% sequentially but fell 15% year over year.
However, First Horizon's provision for loan losses reported a
significant increase to $40 million in the quarter under review
from $15 million reported in the prior quarter and moved up 25%
from $32 million reported in the year-ago quarter.
Quarter in Detail
First Horizon's net interest income was relatively flat
sequentially and down 2% year over year to $173.5 million. Net
interest margin moved down 1 basis point (bp) sequentially and 8
bps year over year to 3.15%.
Non-interest income increased 6% sequentially but slipped 12%
year over year to $163.5 million. However, encouragingly,
non-interest expense plummeted 50% sequentially and 18% year over
year to $263.2 million. As anticipated, the mortgage repurchase
provision expense for the quarter was nil and the company
benefited from its efficiency measures.
Period-end loans were up 2% both sequentially and year over year
at First Horizon. Total deposits increased 1% sequentially and 3%
year over year. Moreover, total consolidated average loans
advanced 3% year over year, and average loans in the C&I
portfolio reported a growth of 15% from the year-ago period.
First Horizon's credit quality metrics bore the impact of the
recently issued regulatory guidelines on performing consumer
loans. However, on a year-over-year basis, trends continued to
Of the loan loss provision of $40 million in the third quarter,
$30 million were related to the implementation of regulatory
Allowance for loan losses were down 12% sequentially and 37% year
over year to $281.7 million. As a percentage of period-end loans
on an annualized basis, allowance for loan losses were 1.71%,
down 27 bps from the prior quarter and 106 bps year over year.
Net charge-offs were up 98% sequentially but fell 25% year over
year to $79.3 million. Net charge-offs in the reported quarter
included $40 million related to the recently issued regulatory
guidance. As a percentage of average loans and on an annualized
basis, net charge-offs were 1.92%, compared with 1.01% in the
prior quarter and 2.65% in the year-ago quarter.
Non-performing assets fell 4% sequentially and 23% year over year
to $450.4 million. Of that, $31 million was for the recent
regulatory guidance. As a percentage of period-end loans plus
foreclosed real estate and other assets, non-performing assets
were 2.15%, down 17 bps sequentially and 87 bps year over year.
Evaluation of Capital
First Horizon's capital ratios slightly improved from the prior
quarter but were down year over year. However, capital ratios
were above well-capitalized levels.
Tier 1 capital ratio inched up to 13.14% from 13.12% in the prior
quarter but fell from 14.44% in the year-ago quarter. Tangible
common equity ratio remained flat sequentially and down 87 bps
year over year to 8.13%. Also, book value came in at $9.05 per
share, up from $8.92 per share in the prior quarter but down from
$9.29 in the year-ago quarter.
Capital Deployment Update
On October 17, the Board of Directors of First Horizon approved a
quarterly cash dividend of 1 cent per share. The dividend is
payable on January 1, 2013, to the common shareholders of record
on December 14, 2012.
During the reported quarter, First Horizon bought back $15
million in shares. Following this, the company had $60 million
available under its $200 million stock repurchase program.
While winding down of the non-strategic part of the loan
portfolio bodes well, it will remain a drag on First Horizon's
earnings going forward. Shrinking revenue base and regulatory
issues, tepid economic recovery along with a low interest rate
environment serve as headwinds for the company's results.
Yet, First Horizon's endeavor to lower its exposure to problem
loans is impressive. It is also aiming at controlling costs and
improving long-term profitability by focusing on strengthening
its core Tennessee banking franchise, which would augur well
going forward. Moreover, share buybacks give a boost to
investors' confidence in the stock.
Among First Horizon's peers, both
Regions Financial Corporation
Synovus Financial Corp.
) will release their third-quarter 2012 earnings on October 23.
First Horizon retains its Zacks #3 Rank, which translates into a
short-term Hold rating.