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First Horizon (FHN) Q2 Earnings Miss, Provisions Escalate

First Horizon National Corporation FHN reported second-quarter 2020 adjusted earnings per share of 20 cents, missing the Zacks Consensus Estimate of 21 cents. Further, the bottom line comes in 52.4% lower than the year-ago figure.

Results notably reflect First Horizon’s improved deposit balance and higher revenues. In addition, efficiency ratio contracted during the quarter, indicating increased profitability. However, rising expenses and provisions were major drags.

Net income available to common shareholders was $52.3 million or 17 cents per share, down from the $109.3 million or 35 cents per share recorded in the prior-year quarter.

Segment wise, quarterly net income for regional banking plunged 29% year over year to $91.5 million. Also, the non-strategic segment reported income of $0.8 million, significantly down 94% year over year. The fixed income segment’s net income of $33.1 million increased by a wide margin from the year-ago reported figure. The corporate segment incurred net loss of $68.7 million.

Higher Expenses Partly Offset Revenue Growth

Total revenues for the second quarter were $511.6 million, up 11% on a year-over-year basis. Also, the top line surpassed the consensus estimate of $478 million.

Net interest income for the reported quarter improved 1% year over year to $305.3 million. Net interest margin shrunk 44 basis points (bps) to 2.90%.

Non-interest income was $206.3 million, up 31% year over year. A rise in fixed income, bank-owned life insurance and other income mainly led to the upside.

Non-interest expenses flared up 11% year over year to $332.2 million. Rise in employee compensation, incentives, and benefits, FDIC premium expense and other expense primarily resulted in this upsurge.

Efficiency ratio was 64.74% compared with the year-ago quarter’s 65.08%. It should be noted that a fall in the efficiency ratio indicates increase in profitability.

Total period-end loans, net of unearned income, totaled $32.7 billion, down 2% from the previous quarter. However, total period-end deposits were $37.8 billion, up 10% sequentially.

Credit Quality: A Concern

Allowance for loan losses was $537.9 million, significantly up from $192.7 million in the prior-year quarter. In addition, non-performing assets increased 9% year over year to $245.4 million. Also, during the June-end quarter, the company recorded $110 million in provision for loan losses, up considerably from the year-ago quarter’s $13 million.

Further, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.64%, up 99 bps year over year. The quarter witnessed net charge-offs of $16.6 million compared with the prior-year quarter’s $5.2 million.

Capital Position

Common Equity Tier 1 ratio was 9.26% compared with the 9.25% witnessed at the end of the year-earlier quarter. Additionally, total capital ratio was 12.48%, up year over year from 11.34%. Leverage ratio was 8.56%, down 48 bps year on year.

Our Viewpoint

First Horizon’s top-line growth was supported by higher net interest income and non-interest income during the April-June period. Furthermore, improvement in the efficiency ratio is anticipated to support profitability.

Nevertheless, escalating expenses are expected to impede bottom-line growth. Furthermore, rising provision for loan losses in response to the coronavirus crisis is another concern.
 

First Horizon National Corporation Price, Consensus and EPS Surprise

First Horizon National Corporation Price, Consensus and EPS Surprise

First Horizon National Corporation price-consensus-eps-surprise-chart | First Horizon National Corporation Quote

First Horizon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

PNC Financial PNC reported second-quarter 2020 loss from continuing operations per share of $1.90 as against the earnings of $2.47 reported in the prior-year quarter. Higher provisions due to the pandemic’s crippling impact on the economy resulted in this dismal performance. The Zacks Consensus Estimate for earnings was pegged at 88 cents.

Truist Financial’s TFC adjusted earnings of 82 cents per share surpassed the Zacks Consensus Estimate of 64 cents in the June-end quarter. Results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains and losses from the early extinguishment of long-term debt.

U.S. Bancorp’s USB shares gained 3.2% in the pre-market trading session, following the release of second-quarter 2020 results. The company reported earnings per share of 41 cents, surpassing the Zacks Consensus Estimate of 34 cents. However, the bottom line compared unfavorably with the $1.09 reported in the prior-year period.

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