First Horizon National Corp.
) reported third-quarter 2013 loss per share of 45 cents,
including the negative impact of 64 cents (after-tax) per share
due to the addition of $200 million to the repurchase reserve.
Excluding this, the company reported adjusted earnings of 19
cents, in line with the Zacks Consensus Estimate, but well ahead
of the year-ago earnings of 10 cents.
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Net loss was $107.5 million, versus an income of $25.8 million in
the prior-year quarter.
First Horizon's results reflected lower revenues due to a
reduction in both net interest as well as non-interest income.
Additionally, higher expenses depicted undisciplined expense
management. However, lower provision for loan losses and net
charge-offs acted as a tailwind.
Notably, First Horizon signed an agreement in principle (AIP)
), settling certain legacy representation and warranty repurchase
obligations related to loans originated from 2000 to 2008.
Certain terms of the agreement are subject to Fannie Mae's
governance and regulatory approvals. Further, the company entered
into an agreement to vend substantially all remaining legacy
mortgage servicing over the coming quarters.
Quarter in Detail
Total revenue came in at $309.3 million, missing the Zacks
Consensus Estimate of $312.0 million. Moreover, revenues fell 8%
from the year-ago quarter.
On a fully taxable equivalent basis, net interest income declined
8% year over year to $160.7 million. Net interest margin
decreased 18 basis points year over year to 2.97%. Non-interest
income slipped 8% from the prior-year quarter to $150.5 million.
Non-interest expense surged 65% from the prior-year quarter to
$433.6 million. First Horizon's expenses included $200 million as
repurchase and foreclosure provision.
Period-end loans declined 7% year over year to $15.4 billion.
However, total deposits remained stable at $16.3 billion as
compared with the prior-year quarter.
First Horizon's credit quality metrics was a mixed bag in the
reported quarter. Allowance for loan losses were down 9% year
over year to $255.7 million. As a percentage of period-end loans
on an annualized basis, allowance for loan losses were 1.66%,
down 5 basis points year over year.
Further, the company's provision for loan losses declined 75%
year over year to $10 million. Net charge-offs went down 80% on a
year-over-year basis to $16.2 million. As a percentage of average
loans and on an annualized basis, net charge-offs were 0.41%,
substantially down from 1.92% reported in the year-ago quarter.
However, nonperforming assets rose 7% year over year to $482
million. As a percentage of period-end loans plus foreclosed real
estate and other assets, nonperforming assets came in at 2.19%,
up 4 basis points year over year.
Evaluation of Capital
First Horizon's capital ratios remained at strong levels.
Adjusted tangible common equity ratio to risk weighted assets was
9.69%, compared with 10.03% as of Sep 30, 2012. Moreover, book
value came in at $8.64 per share, compared with $9.05 per share
in the prior-year quarter.
First Horizon continued with its healthy capital deployment
activities. The company repurchased common shares worth $262.7
million during the quarter.
First Horizon's endeavor to lower its exposure to problem loans
is impressive. It also aims to control costs and improve
long-term profitability by focusing on strengthening its core
Tennessee banking franchise. Moreover, share buybacks and
repurchase obligations settlement would augur well going forward.
However, though winding down of the non-strategic part of its
loan portfolio bodes well, it will remain a drag on First
Horizon's earnings going forward. In addition to a shrinking
revenue base, regulatory issues, a tepid economic recovery and a
low interest rate environment will be headwinds for its results.
First Horizon currently carries a Zacks Rank #4 (Sell). Among
other Southeast banks,
) is expected to announce third-quarter results on Oct 22,
Capital City Bank Group Inc.
) is expected to report on Oct 29.