Negative Impact

Regulatory guidelines hurt First Horizon profit as it misses expectations

By Andy Meek

First Horizon National Corp. reported a $26 million profit for the third quarter and improved profitability in its regional banking and capital markets businesses, though the Memphis-based company’s results still missed Wall Street’s expectations.

First Horizon National Corp., whose headquarters are in Downtown Memphis (above), reported a $26 million profit for the third quarter. However, the company’s results still missed Wall Street’s expectations. (Daily News File Photo/Lance Murphey)

The parent company of First Tennessee Bank notched a profit of $26 million between July and September, down 29 percent from the $36.1 million profit it reported during the same quarter in 2011. On an earnings-per-share basis, the company earned 10 cents in the third quarter, down from 14 cents one year earlier.

The company’s mortgage repurchase provision expense couldn’t get any lower than it did in the third quarter, when it fell to zero. Revenue, loans, deposits and fixed income activity all saw improvement during the quarter as well. Still, the company’s 10 cent earnings per share result missed the 19 cents that was the consensus estimate among analysts.

Also, the company said recently issued regulatory guidelines on consumer loans had a negative impact of 7 cents on earnings per share.

“Our employees continue to do a fantastic job building relationships with our customers, winning new business and working more efficiently, and that’s reflected in the financial results for our core businesses,” said First Horizon chairman and CEO Bryan Jordan.

He added the company is continuing to make progress in unwinding its non-core businesses and to streamline its processes and find new ways of reaching customers. And one analyst who was pleased with the quarter’s results titled his commentary sent out to clients in the aftermath of the company’s earnings conference call, “Final Thoughts on 3Q12 Results: Much Better than the Headline Suggested.”

According to Wunderlich Securities Inc. bank analyst Kevin Reynolds, “Excluding one-time items, (First Horizon’s) results reflected solid performance within the regional bank with strong loan growth and a stable (net interest margin). … Our $12 price target reflects our expectation that First Horizon will continue to improve its bottom line performance as the economy recovers, and we believe current levels continue to offer an attractive entry point for long-term investors.”

The company has plenty of capital, exceeding levels at which it would be regarded as “well-capitalized” and it gave shareholders a dividend of a penny per share Oct. 1. Also during the second quarter, First Horizon repurchased $15 million in stock, leaving $60 million available under the company’s $200 million stock buyback program.

Average total loans at First Tennessee, the largest bank based in the state, were up 12 percent from a year earlier, and average core deposits increased 9 percent year-over-year. Higher loan balances helped improve the company’s net interest income and contribute a 2 percent increase in total revenue from the second quarter to the third quarter.

As the company continues trimming itself down, it reported an 18 percent decrease in consolidated expenses year-over-year. Along those lines, the company earlier this month sent out letters offering buyouts to some 400 employees. And the company’s executive leadership, including Jordan, is taking a pay cut.

The company in recent days acknowledged that Jordan volunteered for a pay cut including a 5 percent reduction to his cash salary.

Meanwhile, FTN Financial – the company’s capital markets business – continues to be a boon for First Horizon, with third quarter fixed income average daily revenue of $1.2 million.

“Powering through the noise on this,” Reynolds wrote, “(First Horizon’s) 3Q12 results were pretty solid, with loan growth, revenue growth, a stable net interest margin, improving expenses and greatly diminished mortgage repurchase risk.”