On Sep 11, 2014, we issued an updated research report on First Horizon National Corporation (FHN). Shares of this Tennessee-based major regional bank have gained 7.7% year to date. We believe this growth story has been aided by the company’s continued focus on expense management apart from several other positives including a strong capital position, steady capital deployment activities and improving credit quality.
First Horizon’s total non-interest expenses (excluding non-recurring charges) declined consecutively in the last four quarters. For the full-year 2013, the company recorded a 16% year-over-year decline in non interest expenses. Notably, the company achieved its goal of reducing annualized consolidated expenses to about $1 billion by the end of 2012, a year earlier than its initial target.
The company anticipates expenses to be around $850 million for the remaining year, lower than the $900 million estimate given in the beginning of the year. Going forward, it also aims to achieve its target efficiency ratio, which is in the range of 60.0% to 65.0%.
Further, in the wake of the financial crisis, First Horizon was severely impacted as a result of its exposure to national mortgage and construction lending, and thus it decided to exit these business lines and focus on growing its core Tennessee banking franchise. The company is in the process of reallocating capital into its core markets and thereby aims to improve the top line. Recently, it inked a deal to acquire 13 branches and four remote ATMs from Bank of America Corporation (BAC) that is set to further strengthen its footprint in Tennessee.
We remain optimistic on the efforts being taken by the company and believe it possesses better growth prospects in the long run. However, a shrinking revenue base with decline in interest and fee income, lingering mortgage repurchase issues and the prevailing stringent regulatory landscape will continue to mar First Horizon’s growth.
Management expects that a persistent low interest rate environment will keep NIM under pressure for 2014, which will cause continued strain on yields in the loan portfolios. The company also expects average daily revenues in fixed income to remain in the lower levels due to unfavorable market conditions.
Analysts’ mixed stance on the stock was reflected in the movement of the Zacks Consensus Estimate over the past 30 days. For 2014, the Zacks Consensus Estimate advanced 1.2% to 86 cents per share while it remained stable at 80 cents for 2015.
First Horizon currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Farmers Capital Bank Corporation (FFKT) and First Community Bancshares, Inc. (FCBC) are among the better-ranked stocks in the southeast banking space. Both these stocks sport a Zacks Rank #1 (Strong Buy).
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