First Horizon (FHN) Stock Down Despite Q3 Earnings Beat

First Horizon National Corporation (NYSE:FHN) reported third-quarter 2019 adjusted earnings per share of 43 cents, which surpassed the Zacks Consensus Estimate by a penny. Further, the bottom line was 19% higher than the year-ago figure.

Results reflect First Horizon’s improved loan portfolio and lower expenses. In addition, efficiency ratio contracted during the quarter, indicating increased profitability.

However, shares of First Horizon declined 4% post earnings release, reflecting investors’ concern over lower net interest income and worsening credit quality.

After considering certain non-recurring items, net income available to common shareholders came in at $109.5 million, down 59% from the prior-year quarter.

Segment wise, quarterly net income for regional banking climbed 4% year over year to $132.7 million. Fixed income segment reported net income of $11.7 million, up significantly from year-ago quarter. Also, non-strategic segment reported income of $5.9 million, down 46%. Corporate segment incurred net loss of $36.3 million.

Revenues Decline, Loans Rise, Costs Fall

Total revenues for the third quarter came in at $472.4 million, down 28% on a year-over-year basis. However, the top line surpassed the Zacks Consensus Estimate of $464.8 million.

Net interest income for the reported quarter dipped 2% year over year to $300.7 million. Net interest margin shrunk 23 basis points (bps) to 3.21%. Also, non-interest income came in at $171.7 million, down 51%.

Non-interest expenses increased 5% year over year to $307.7 million.

Efficiency ratio was 65.14% compared with 66.55% in the year-ago quarter. It should be noted that a fall in the efficiency ratio indicates increase in profitability.

Total period-end loans, net of unearned income, totaled $31.3 billion, up 5% from the previous quarter. However, total period-end deposits were $31.9 billion, down 1%.

Credit Quality Worsens

Allowance for loan losses was up 4% year over year to $193.1 million. However, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.62%, down 6 bps year over year.

Nonetheless, the quarter witnessed net charge-offs of $14.6 million compared with $1.5 million in the prior-year quarter. In addition, non-performing assets increased 9% to $194.5 million. Also, during the quarter, the company recorded $15 million in provision for loan losses, up considerably from $2 million a year ago.

Capital Position

Common Equity Tier 1 ratio was 8.99% compared with 9.84% at the end of the year-earlier quarter. Additionally, total capital ratio came in at 10.99%, down from 12.02%.

Our Viewpoint

Continued growth in loans is likely to be conducive to First Horizon’s top-line performance. Further, improvement in the efficiency ratio is anticipated to support profitability. Also, prudent cost management supports bottom-line expansion. Nevertheless, rising provision for loan losses remains a drag.

First Horizon National Corporation Price, Consensus and EPS Surprise

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

Driven by top-line strength, U.S. Bancorp (NYSE:USB) delivered a positive earnings surprise of 3.6% in third-quarter 2019. Earnings per share of $1.15 surpassed the Zacks Consensus Estimate of $1.11. Also, the reported figure jumped 8.5% from the prior-year quarter.

PNC Financial (NYSE:PNC) pulled off positive earnings surprise of 5% in third-quarter 2019. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line reflects a 4.3% jump from the year-ago reported figure.

Comerica (NYSE:CMA) reported third-quarter 2019 earnings per share of $1.96 that surpassed the Zacks Consensus Estimate of $1.91. Also, the bottom line was up from the prior-year quarter figure of $1.86.

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