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Why is First Horizon (FHN) Up 7.2% Since Its Last Earnings Report?
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A month has gone by since the last earnings report for First Horizon National Corporation (FHN - Free Report) . Shares have added about 7.2% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is FHN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First Horizon Q2 Earnings In Line, Expenses Flare Up
First Horizon reported second-quarter 2018 adjusted earnings per share of 36 cents, in line with the Zacks Consensus Estimate. The figure reflects an increase of 26.3% from the year-ago quarter.
Revenues improved from the prior-year quarter, supported by an expanded net interest margin. In addition, a considerable rise in loans and deposit balances was recorded. However, the bank’s net income declined on a year-over-year basis. Substantial rise in expenses and weakening of capital position were the key undermining factors. Further, efficiency ratio increased during the quarter.
Net income available to common shareholders for the quarter was $81.6 million, down 10% from the prior-year period.
Segment wise, fixed income and corporate segments reported net losses of $0.4 million and $49.5 million, respectively. Also, net income for non-strategic segment plummeted 58% to $6.6 million year over year. However, quarterly net income in the regional banking segment surged 78% year over year to $129.2 million.
Increase in Revenues Offset by Elevated Expenses
Total revenues for the quarter came in at $438.5 million, up 34% on a year-over-year basis. However, the figure lagged the Zacks Consensus Estimate of $448 million.
Net interest income for the quarter increased 55% from the prior-year quarter to $310.9 million. Net interest margin expanded 46 basis points (bps) to 3.53%. However, non-interest income decreased slightly to $127.5 million.
Non-interest expenses flared up 53% year over year to $332.8 million due to rise in almost all the components, except legal fees, amortization of intangible assets and other costs including the impact of merger costs related to FHN’s $10B acquisition of Capital Bank.
Efficiency ratio came was 75.9% compared with 66.44% reported a year ago. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.
Total period-end loans, net of unearned income, came in at $27.7 billion, up 2% from the previous quarter. However, total period-end deposits amounted to $31 billion, up 1% sequentially.
Credit Quality
Allowance for loan losses was down 6% year over year to $185.5 million. The quarter witnessed net charge-offs of $1.7 million compared with $2.7 million recorded in the prior-year quarter. Also, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.67%, down 32 bps year over year.
However, non-performing assets increased 9% year over year to $157 million, which includes the impact of FHN’s $10B acquisition of Capital Bank. Also, during the quarter, the company did not record any provision for loan losses against a credit of $2 million in the prior-year quarter.
Capital Position Weakens
Tier 1 common equity ratio was 8.95%, down from 9.85% at the end of the year-earlier quarter. Additionally, total capital ratio was 11.21%, down from 11.98% in year-ago quarter.
Outlook
Management expects Capital Bank merger to be accretive to EPS by 17% in 2019, up from 8% it originally expected. In 2018, total cost savings of $53 million are expected to be delivered while another $85 million is likely to be achieved in 2019.
Long-term Bonefish Targets:
ROTCE is expected to be more than 15%. Return on assets to be in the range of 1.1-1.3%. Common equity Tier 1 ratio is likely to be in 8-9% range, while NCO/average loans to be 0.20-0.60%. Moreover, net interest margin is anticipated in 3.25-3.50% range, while fee income to revenue ratio to be 30-40%. Further, efficiency ratio is expected to be 60-65%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter.
First Horizon National Corporation Price and Consensus
At this time, FHN has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, FHN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why is First Horizon (FHN) Up 7.2% Since Its Last Earnings Report?
A month has gone by since the last earnings report for First Horizon National Corporation (FHN - Free Report) . Shares have added about 7.2% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is FHN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First Horizon Q2 Earnings In Line, Expenses Flare Up
First Horizon reported second-quarter 2018 adjusted earnings per share of 36 cents, in line with the Zacks Consensus Estimate. The figure reflects an increase of 26.3% from the year-ago quarter.
Revenues improved from the prior-year quarter, supported by an expanded net interest margin. In addition, a considerable rise in loans and deposit balances was recorded. However, the bank’s net income declined on a year-over-year basis. Substantial rise in expenses and weakening of capital position were the key undermining factors. Further, efficiency ratio increased during the quarter.
Net income available to common shareholders for the quarter was $81.6 million, down 10% from the prior-year period.
Segment wise, fixed income and corporate segments reported net losses of $0.4 million and $49.5 million, respectively. Also, net income for non-strategic segment plummeted 58% to $6.6 million year over year. However, quarterly net income in the regional banking segment surged 78% year over year to $129.2 million.
Increase in Revenues Offset by Elevated Expenses
Total revenues for the quarter came in at $438.5 million, up 34% on a year-over-year basis. However, the figure lagged the Zacks Consensus Estimate of $448 million.
Net interest income for the quarter increased 55% from the prior-year quarter to $310.9 million. Net interest margin expanded 46 basis points (bps) to 3.53%. However, non-interest income decreased slightly to $127.5 million.
Non-interest expenses flared up 53% year over year to $332.8 million due to rise in almost all the components, except legal fees, amortization of intangible assets and other costs including the impact of merger costs related to FHN’s $10B acquisition of Capital Bank.
Efficiency ratio came was 75.9% compared with 66.44% reported a year ago. It should be noted that a rise in the efficiency ratio indicates deterioration in profitability.
Total period-end loans, net of unearned income, came in at $27.7 billion, up 2% from the previous quarter. However, total period-end deposits amounted to $31 billion, up 1% sequentially.
Credit Quality
Allowance for loan losses was down 6% year over year to $185.5 million. The quarter witnessed net charge-offs of $1.7 million compared with $2.7 million recorded in the prior-year quarter. Also, as a percentage of period-end loans on an annualized basis, allowance for loan losses was 0.67%, down 32 bps year over year.
However, non-performing assets increased 9% year over year to $157 million, which includes the impact of FHN’s $10B acquisition of Capital Bank. Also, during the quarter, the company did not record any provision for loan losses against a credit of $2 million in the prior-year quarter.
Capital Position Weakens
Tier 1 common equity ratio was 8.95%, down from 9.85% at the end of the year-earlier quarter. Additionally, total capital ratio was 11.21%, down from 11.98% in year-ago quarter.
Outlook
Management expects Capital Bank merger to be accretive to EPS by 17% in 2019, up from 8% it originally expected. In 2018, total cost savings of $53 million are expected to be delivered while another $85 million is likely to be achieved in 2019.
Long-term Bonefish Targets:
ROTCE is expected to be more than 15%. Return on assets to be in the range of 1.1-1.3%. Common equity Tier 1 ratio is likely to be in 8-9% range, while NCO/average loans to be 0.20-0.60%. Moreover, net interest margin is anticipated in 3.25-3.50% range, while fee income to revenue ratio to be 30-40%. Further, efficiency ratio is expected to be 60-65%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter.
First Horizon National Corporation Price and Consensus
First Horizon National Corporation Price and Consensus | First Horizon National Corporation Quote
VGM Scores
At this time, FHN has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, FHN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.