First Horizon Focused On Expansion; Time To Build Position?

On Dec 11, 2014, we issued an updated research report on First Horizon National Corporation FHN. Shares of this Tennessee-based bank have gained nearly 14% year to date. We believe this growth story has been aided by the company's continued focus on expansion initiatives apart from several other positives including cost control measures, steady capital deployment activities and improving credit quality.

In the wake of the financial crisis, First Horizon was severely impacted as a result of its exposure to national mortgage and construction lending, and thus it decided to exit these business lines and focus on growing its core Tennessee banking franchise. The company's repositioning and restructuring efforts, which are still underway, helps the company reallocate the capital into its core markets.

Recently, First Horizon inked a deal to acquire TrustAtlantic Financial Corp, in an effort to enhance its footprint in North Carolina. The high-potential market in North Carolina, along with the strong relationships that TrustAtlantic has built in the area, might have prompted First Tennessee to opt for the acquisition. The deal is expected to close in the first half of 2015.

Further, in Oct 2014, First Horizon completed the acquisition of 13 branches of Bank of America Corp. BAC. This transaction paved the way for First Tennessee to further spread its wings in several parts of Middle and East Tennessee including Waverly, Columbia, Lawrenceburg and Johnson City.

Also, First Horizon is focused on expense management. The company's total non-interest expenses declined 30% year over year in the nine months ended Sep 2014. The company plans to cut back an additional $20–$50 million in annual expenses going forward through several initiatives including resolution of legacy issues and branch network optimization. We expect the company's cost control measures to aid in improving operating efficiencies.

However, margin pressure, lingering mortgage repurchase issues and the prevailing stringent regulatory landscape will continue to mar First Horizon's growth. Notably, management provided revised net interest margin NIM estimates to be few points below or above 2.90% in fourth-quarter 2014, mainly reflecting anticipated deposit inflows. Further, the higher level of cash with the Fed is expected to put further pressure on NIM going forward.

Over the past 30 days the Zacks Consensus Estimate remained stable at 88 cents per share and 80 cents per share, for 2014 and 2015, respectively.

First Horizon currently carries a Zacks Rank #3 (Hold). Fidelity Southern Corp. LION and Investar Holding Corp. ISTR are among the better-ranked stocks in the Southeast banking space. Both these stocks sport a Zacks Rank #1 (Strong Buy).