First Horizon National Corporation (FHN) reported third-quarter 2014 adjusted earnings per share of 17 cents, in line with the Zacks Consensus Estimate. However, results compared unfavorably with the year-ago adjusted earnings of 19 cents per share.
Including gains on sales of held-for-sale loans in the non-strategic portfolio of $25 million (after tax), loss accruals related to legal matters of $32 million (after tax) and litigation expense recovery of $10 million (after-tax), net income available to common shareholders was $45.3 million or 19 cents per share, compared with net loss of $107.5 million or loss of 45 cents per share.
First Horizon’s results reflected improved top line, reduced expenses and lower provision for loan losses. Moreover, improvement in the credit quality and a strong capital position were among other positives. While loan balance improved, the quarter experienced lower deposits.
Quarter in Detail
Total revenue came in at $317.4 million, up 3% from the year-ago quarter. The increase was primarily driven by higher non-interest income. Moreover, results outpaced the Zacks Consensus Estimate of $282.0 million.
Net interest income increased slightly year over year to $159.5 million. Net interest margin remained stable year over year at 2.97%.
Non-interest income increased 5% from the prior-year quarter to $158.7 million. Non-interest expense declined 43% from the prior-year quarter to $246.2 million.
Period-end loans, net of unearned income increased 3% year over year to $15.8 billion, while period-end total deposits declined marginally to $16.1 billion.
Credit Quality
Overall, First Horizon’s credit quality metrics improved in the reported quarter. Allowance for loan losses were down 7% year over year to $238.6 million. As a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.51%, down 15 basis points year over year.
Further, the company’s provision for loan losses declined 40% year over year to $6 million. Net charge-offs fell 32% on a year-over-year basis to around $11 million. Moreover, nonperforming assets declined 36% year over year to $256.9 million.
Evaluation of Capital
First Horizon’s capital ratios remained at strong levels. Adjusted tangible common equity to risk weighted assets ratio was 10.69% versus 9.77% as of Sep 30, 2013. Adjusted Tier 1 common ratio to risk weighted assets stood at 11.31% compared with 10.21% in the prior-year quarter. Tier 1 ratio was 14.37% compared with 13.28% in the prior-year quarter.
Our Viewpoint
Results reflect a decent quarter for First Horizon. Further, we remain encouraged by the company’s endeavors to lower its exposure to problem loans. It also aims to control costs and improve long-term profitability by focusing on strengthening its core Tennessee banking franchise.
However, though winding down of the non-strategic part of First Horizon’s loan portfolio bodes well, it will remain a drag on the company earnings going forward. Regulatory issues, a tepid economic recovery and low interest rate environment will challenge its performance.
Among other Southeast banks, BancorpSouth, Inc. (BXS) is scheduled to announce third-quarter results on Oct 20, while both Regions Financial Corp. (RF) and WesBanco Inc. (WSBC) will release on Oct 21.
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