First Horizon Grows Profit as Expenses Fall

By Andy Meek

Memphis-based First Horizon National Corp., the parent company of First Tennessee Bank, kicked off its first quarterly earnings announcement of 2013 by meeting analyst expectations and reporting a profit of $42.2 million, up from $30.5 million during the first quarter of 2012.

In terms of earnings per share, the current quarter’s profit equated to 17 cents a share, up from 12 cents one year earlier.

Wunderlich Securities Inc. bank analyst Kevin Reynolds looks at how the largest bank based in Tennessee performed during the first three months of 2013 and says it reflects “one of the best-positioned regional banks out there.”

The quarter, according to Reynolds, was one of the “cleanest” in a while, in terms of fewer one-time factors affecting the overall picture. Seasonal factors, such as a shift in the loan mix, did put pressure on investment and loan yields, according to bank officials, but Reynolds said he thinks 2013 probably will get better from here for the company.

Moreover, he doesn’t see outside economic factors as uncontrollably limiting for the bank’s prospects.

“They don’t have to have the uncontrollable (cost) structure work in their favor for (earnings-per-share) to go higher,” Reynolds said.

In an analyst note he released to clients following a conference call between bank officials and analysts, Reynolds wrote that First Horizon shares are attractively valued for long-term investors.

First Horizon’s efficiency ratio, an important metric of the bank’s progress, has fallen for the last three quarters. That ratio in the first quarter was 75.69 percent, indicating First Horizon spends 75 cents to make a dollar. That’s down from almost 80 percent in the third quarter of 2012, and bank officials have talked in the past about wanting to get that percentage down as low as 60 cents.

One reason the efficiency ratio is still higher than the company would like is because First Horizon is still dealing with the effects of its transition from being a national mortgage lending company to one refocused on its core businesses of regional banking and capital markets. In other words, there are still expenses that need to come out of the organization.

Along with the company’s expenses down 25 percent from the first quarter of 2012, meanwhile, the company has shaved its full time-equivalent employees for each of the last five quarters. That number is currently at 4,381, down from 4,629 in the first quarter of 2012.

Year over year, First Tennessee’s bankers grew average loans 6 percent and average core deposits 4 percent, while shaving expenses 8 percent. The company’s capital markets business continues to provide steady fee income and high returns, with fixed income average daily revenues of $1.1 million in the first quarter.

The company’s provision for loan losses was $15 million, up from $8 million a year earlier.

First Horizon chairman and CEO Bryan Jordan told analysts on a conference call at week’s end the quarter reflects the bank continuing to make progress toward achieving its strategic priorities and successfully reorienting its business mix.

First Horizon, Jordan said, also has been taking steps that include returning cash to shareholders and cutting expenses.

“We’re focusing on areas of our business where we can create value for the long term – winning new business, developing our people, smartly reducing expenses, investing in technology, streamlining the way we get things done,” Jordan said. “The strength of our regional banking business, First Tennessee, and our capital markets business, FTN Financial, is apparent as we’ve refocused where we know how to compete and create real value for our customers.”

Jordan went on to say the company has hired several “relationship managers” over the last couple of years and that as part of adapting to customer preferences, First Horizon is rethinking its branch network from a number and size standpoint.

Jordan added that the company is looking to host an analyst day in the fall.