First Horizon (FHN) Q3 Earnings Beat Estimates, Costs Rise

First Horizon National Corporation FHN reported third-quarter 2020 adjusted earnings per share of 35 cents, surpassing the Zacks Consensus Estimate of 17 cents. However, the bottom line compares unfavorably with 43 cents reported in the year-ago quarter.

Certain non-recurring items included in third-quarter results were the impact of the IBERIABANK merger and the Truist branch acquisition-related expenses and purchase accounting gain impact.

The company’s performance displays top-line strength along with improved loans and deposit balance. Efficiency ratio contracted during the quarter, indicating increased profitability. However, rising expenses and provisions were major drags.

Net income available to common shareholders was $523 million or 95 cents per share, down from the $110 million or 35 cents per share recorded in the prior-year quarter.

Segment wise, quarterly net income for regional banking fell 9% year over year to $121 million. Also, the non-strategic segment reported income of $2 million, down 67% year over year. However, the fixed income segment’s net income of $42 million increased by a wide margin. The corporate segment reported net income of $374 million against net loss of $37 million a year ago.

Higher Expenses Partly Offset Revenue Growth

Total revenues for the third quarter were $1.36 billion, up significantly from $472 million on a year-over-year basis. Also, the top line surpassed the consensus estimate of $789.3 million.

Net interest income for the reported quarter improved 77% year over year to $532 million. Net interest margin shrunk 12 basis points (bps) to 2.84%.

Non-interest income was $823 million, up significantly year over year. On an adjusted basis, non-interest income climbed 69%. A rise in mortgage banking, fixed income, bank-owned life insurance and card fees mainly led to the upside.

Non-interest expenses flared up 91% year over year to $587 million. Also, costs increased 70% on an adjusted basis. Almost all the components witnessed an upsurge during the quarter.

Efficiency ratio was 43.31% compared with the year-ago quarter’s 65.26%. It should be noted that a fall in the efficiency ratio indicates increase in profitability.

Total period-end loans, net of unearned income, totaled $59.7 billion, up 83% from the previous quarter. Also, total period-end deposits were $47 billion, up 81% sequentially.

Credit Quality: A Concern

Allowance for loan losses of $988 million rose considerably from $193 million in the prior-year quarter. In addition, non-performing assets increased to $447 million from $172 million. Also, during the September quarter, the company recorded $230 million in provision for loan losses, up considerably from the year-ago quarter’s $15 million.

Further, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.65%, up 103 bps year over year. The quarter witnessed net charge-offs of $67 million compared with the prior-year quarter’s $15 million.

Capital Position

Common Equity Tier 1 ratio was 9.15% compared with the 9.01% witnessed at the end of the year-earlier quarter. Additionally, total capital ratio was 11.97%, up from 11.01%. Leverage ratio was 8.25%, down 80 bps.

Our Viewpoint

First Horizon’s third-quarter results benefited from the completion of merger of equals with IBERIABANK and the Truist branch acquisition. Also, top-line growth was supported by strength in mortgage banking activities. 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

Fifth Third Bancorp FITB reported third-quarter 2020 adjusted earnings of 85 cents per share, surpassing the Zacks Consensus Estimate of 59 cents. Also, results compared favorably with the prior-year quarter’s earnings of 75 cents per share.

M&T Bank Corporation MTB reported third-quarter 2020 earnings surprise of 5.3% on controlled expenses. Net operating earnings per share of $2.77 beat the Zacks Consensus Estimate of $2.63. The bottom line, however, compares unfavorably with the $3.50 per share reported in the year-ago quarter.

Huntington BancsharesHBAN third-quarter 2020 earnings per share of 27 cents outpaced the Zacks Consensus Estimate of 25 cents on impressive top-line strength. The bottom-line figure, however, was 21% lower than the prior-year quarter reported tally.

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