First Horizon (FHN) Down 3.5% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for First Horizon National (FHN). Shares have lost about 3.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is First Horizon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
First Horizon Q2 Earnings & Revenues Beat Estimates
First Horizon reported second-quarter 2019 adjusted earnings per share of 42 cents which surpassed the Zacks Consensus Estimate of 37 cents. Further, the bottom line was 17% higher than the year-ago figure.
Results reflect First Horizon’s top-line strength and lower expenses. In addition, efficiency ratio contracted during the quarter, indicating increased profitability. However, lower net interest income, rise in net charge-offs and provision for loan losses were the key undermining factors.
After considering certain non-recurring items, net income available to common shareholders came in at $109.3 million, up 34% than the prior-year quarter.
Segment wise, quarterly net income for the regional banking segment declined 3% year over year to $128.3 million. However, Fixed income and non-strategic segments reported net income of $12.2 million and $13.2 million, respectively, — an improvement from the year-ago quarter. The corporate segment incurred net loss of $40 million.
Revenues Climb, Costs Down
Total revenues for the second quarter came in at $461.6 million, up 5% on a year-over-year basis. Also, the top line surpassed the Zacks Consensus Estimate of $442.3 million.
Net interest income for the reported quarter dipped 2% year over year to $303.6 million. Net interest margin shrunk 19 basis points (bps) to 3.34%. However, non-interest income came in at $158 million, up 24%.
Non-interest expenses slipped 10% year over year to $300.4 million.
Efficiency ratio came in at 65.08% compared with 75.90% witnessed in the year-ago quarter. It should be noted that a fall in the efficiency ratio indicates increase in profitability.
Total period-end loans, net of unearned income, came in at $29.7 billion, up 6% from the previous quarter. However, total period-end deposits were $32.3 billion, down marginally from first-quarter 2019.
Credit Quality Worsens
Allowance for loan losses was up 4% year over year to $192.7 million. However, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.65%, down 2 bps year over year.
Nonetheless, the quarter witnessed net charge-offs of $5.2 million compared with $1.7 million reported in the prior-year quarter. In addition, non-performing assets increased 44% to $225.7 million. Also, during the quarter, the company recorded $13 million in provision for loan losses against no provisions in the year-ago quarter.
Tier 1 common equity ratio was 9.25%, up from 8.98% at the end of the year-earlier quarter. Additionally, total capital ratio was 11.34%, up from 11.25%.
In 2019, ROTCE is expected to be around 17% and return on assets to be around 1.20%.
Further, common equity Tier 1 ratio is likely to be in 9.5-10% range.
Also, NIM is projected to be around 3.30% and efficiency ratio is anticipated to be 61%.
NCOs are expected to be less than 10 basis points.
Management expects expenses to remain flat or decline slightly in the remaining 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 10.26% due to these changes.
Currently, First Horizon has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise First Horizon has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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