First Horizon (FHN) Q2 Earnings Miss Estimates, NII Improves

First Horizon National Corporation FHN reported second-quarter 2022 adjusted earnings per share of 34 cents. This excluded after-tax impacts of 5 cents per share from notable items related to the IBERIABANK Corporation and TD Bank merger transactions. The reported number missed the Zacks Consensus Estimate of 35 cents. Also, the figure declined 41% year over year.

The results reflect strong net interest income (NII) growth, high loan and lease balances, and a decline in expenses. However, a fall in non-interest income, lower deposits and higher provisions were headwinds.

Net income available to common shareholders was $166 million, down 44% year over year.

Revenues & Expenses Fall

Total revenues were $743 million, down 5% year over year. Nonetheless, the top line surpassed the consensus estimate of $729.1 million.

NII increased 9% year over year to $542 million. Also, the net interest margin NIM rose 27 basis points (bps) to 2.74%.

Non-interest income was $201 million, plunging 29%.

Non-interest expenses fell 2% year over year to $489 million.

The efficiency ratio was 65.76%, up from the year-ago period's 63.67%. A rise in the efficiency ratio indicates a decrease in profitability.

Total period-end loans and leases, net of unearned income, were $56.53 billion, up 3% from the prior quarter's end. Total period-end deposits of $70.55 billion decreased 5%.

Credit Quality: Mixed Bag

Non-performing loans and leases of $301 million declined 12% from the prior-year period. The allowance for loan and lease losses of $624 million decreased 23%.

As of Jun 30, 2022, total allowance for loans and lease losses to loans and leases was 1.1%, down from 1.44% in the prior-year quarter.

However, the provision for credit losses was $30 million against a benefit of $115 million in the prior-year quarter. This reflected the impact of loan growth and the challenging macroeconomic outlook. Also, the second quarter witnessed net charge-offs of $12 million against a recovery of $10 million in the prior-year quarter.

Capital Ratios Deteriorate

Tier 1 leverage ratio was 9.1%, up from 8.2% in the prior year. As of Jun 30, 2022, Common Equity Tier 1 ratio was 9.8%, down from 10.3% in the year-earlier quarter.

Total capital ratio was 13%, down from the previous-year quarter's 13.1%.

Our Viewpoint

First Horizon has a diversified product base and has expanded its footprint in the targeted markets. The company's continuous focus on inorganic expansion renders an optimistic approach to investors.

Performance of Other Banks

U.S. Bancorp USB reported second-quarter 2022 earnings per share of $1.09 (excluding merger and integration-related charges of 10 cents), which beat the Zacks Consensus Estimate of 1.07 per share. However, the bottom line does not compare favorably with the prior-year quarter's figure of $1.28.

Results were supported by an increase in revenues and average loan growth. U.S. Bancrop's credit quality was decent in the quarter. However, higher expenses and elevated provision for credit losses were the offsetting factors.

First Republic Bank's FRC second-quarter 2022 earnings per share of $2.16 surpassed the Zacks Consensus Estimate of $2.05. Additionally, the bottom line improved 10.8% from the year-ago quarter.

Results benefited from an increase in NII and non-interest income. The First Republic Bank's capital position was strong during the quarter. Yet, higher expenses and elevated provision for credit losses were the undermining factors.
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Image sourced from Shutterstock