First Horizon National Corp. (FHN) reported fourth-quarter 2014 earnings per share of 20 cents, outpacing the Zacks Consensus Estimate of 17 cents on the back of prudent cost-control initiatives. However, results compared unfavorably with the year-ago figure of 21 cents per share.
For full-year 2014, earnings per share came in at 90 cents, beating the Zacks Consensus Estimate of 65 cents. Moreover, the figure came significantly above the prior-year earnings of 10 cents per share.
Shares of First Horizon gained 1.8% since the company reported its earnings on Jan 23. This indicates investors’ bullishness on the results.
Better-than-expected results were primarily driven by lower expenses and higher net interest income, partially offset by lower non-interest income. Increased loan and deposits growth, coupled with improvement in credit metrics and strong capital position, were the tailwinds for the quarter.
Net income for the fourth quarter amounted to $46.4 million, down 6% from the prior-year quarter. For 2014, net income totaled $213.3 million, increasing significantly year over year from $23.8 million in 2013.
Segment-wise, fourth-quarter net income of Regional Banking rose 16% year over year to $50.4 million. However, net income for Capital Markets and Non-Strategic segments declined 42% and 16%, respectively. Further, net loss incurred by the Corporate segment widened significantly year over year to $8.9 million.
In 2014, First Horizon acquired 13 branches in Tennessee and announced the purchase of TrustAtlantic Bank in North Carolina.
Performance in Detail
Total revenue came in at $278.6 million, down 5% from the year-ago quarter. The decline was due to a fall in non-interest income, partially offset by a rise in net interest income. Moreover, revenues lagged the Zacks Consensus Estimate of $280.9 million.
Total revenue for 2014 was $1.2 billion, down 4% from 2013. However, it outpaced the Zacks Consensus Estimate of $1.1 billion.
Net interest income increased 1% year over year to $159.1 million. Yet, net interest margin declined 12 basis points (bps) year over year to 2.86%.
Non-interest income slipped 11% from the prior-year quarter to $119.6 million. Non-interest expense declined 19% from the prior-year quarter to $209.5 million.
Efficiency ratio declined to 75.18% from 88.66% in the prior-year quarter. A fall in efficiency ratio indicates rise in profitability.
Period-end loans, net of unearned income, increased 5% year over year to $16.2 billion. Moreover, total deposits rose 8% to $18.1 billion compared with the prior-year quarter.
Credit Quality
First Horizon’s credit quality metrics continued to improve in the reported quarter. Allowance for loan losses was down 8% year over year to $232.4 million. As a percentage of period-end loans on an annualized basis, allowance for loan losses was 1.43%, down 22 bps year over year.
Further, the company’s provision for loan losses declined 60% year over year to $6 million. Net charge-offs fell 28% on a year-over-year basis to $12.2 million. As percentage of average loans and on an annualized basis, net charge-offs were 0.30%, down 14 bps on a year-over-year basis. Moreover, nonperforming assets dropped 33% year over year to $241.5 million.
Evaluation of Capital
First Horizon’s capital ratios continued to be strong. Adjusted tangible common equity to risk weighted assets ratio was 10.29% versus 10.37% as of Dec 31, 2013. Tier 1 common to risk weighted assets ratio was 11.41% compared with 10.75% in the prior-year quarter.
Capital Deployment
First Horizon repurchased shares worth $14.5 million during the fourth quarter, as part of the $100 million share repurchase program announced in Jan 2014. Since inception, the company has repurchased shares worth $38.5 million at a volume weighted average price of $12.33 per share, inclusive of per share brokerage commission of 2 cents.
Outlook
First Horizon expects its net income margin (“NIM”) to be considerably lower in the first quarter of 2015 owing to seasonality and excess cash. However, the same is expected to increase after the first quarter. For 2015, management anticipates NIM to be nearly 2.80%. Further, net interest income is expected to be relatively stable or modestly down.
Also, management sees continued loan growth in 2015 and 2016, and more opportunities in the Middle Tennessee market. It also remains focused on bringing the efficiency ratio further down by 2015.
Our Viewpoint
First Horizon exhibits successful efforts in controlling expenses, which is expected to boost its margins in the upcoming quarters. Moreover, the company’s focus on strengthening its profitable Tennessee banking franchise and exiting the non-strategic segment should augur well going forward.
However, such winding up of businesses would drag earnings in the quarters ahead. Further, a declining revenue base, regulatory pressures and low interest rate environment are anticipated to continue as headwinds.
At present, First Horizon carries a Zacks Rank #3 (Hold).
Among other Southeast banks, Regions Financial Corporation (RF) reported fourth-quarter 2014 earnings from continuing operations of 14 cents per share, which missed the Zacks Consensus Estimate by 7 cents due to lower revenues.
Moreover, Popular, Inc.’s (BPOP) fourth-quarter earnings of 41 cents per share lagged the Zacks Consensus Estimate of 48 cents and Hancock Holding Company (HBHC) reported fourth-quarter operating earnings of 56 cents per share, lagging the Zacks Consensus Estimate of 58 cents per share.
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