First Horizon National’s Earnings Call: Growth Amid Challenges

First Horizon National ((FHN)) has held its Q2 earnings call. Read on for the main highlights of the call.

First Horizon National’s recent earnings call presented a balanced sentiment, highlighting both strong profitability and growth in its loan portfolio alongside challenges such as net interest margin compression and increased deposit competition. The overall tone of the call reflected optimism tempered with caution, as the company navigates a complex financial landscape.

Strong Profitability and Growth

First Horizon reported an adjusted EPS of $0.45, marking a $0.03 increase from the previous quarter. This growth was supported by a $4 million rise in pre-provision net revenue and a $10 million increase in net interest income, driven largely by the expansion of its loan portfolio.

Credit Portfolio Stability

The company maintained a stable charge-off ratio at 22 basis points, with a slight 3 basis point decline in coverage for credit losses. The reduction in nonperforming CRE loans further strengthened First Horizon’s credit portfolio.

Balance Sheet Expansion

First Horizon saw a 2% quarter-over-quarter increase in period-end balances for both loans and deposits. Notably, there was significant growth in loans to mortgage companies and the C&I portfolio, underscoring the bank’s strategic focus on expanding its balance sheet.

High Retention Rate for Deposits

The company successfully retained approximately 95% of the $23 billion in balances associated with clients who experienced a repricing event during the quarter, demonstrating strong customer loyalty and effective deposit management strategies.

Capital Management and Repurchase Authorization

First Horizon maintained robust capital levels with a CET1 ratio of 11%. The company utilized $9 million of its $1 billion share repurchase authorization, indicating a disciplined approach to capital management.

Net Interest Margin Compression

The bank experienced a net interest margin compression of 2 basis points to 3.40%, primarily due to a 4 basis point increase in interest-bearing deposit costs, reflecting the challenging interest rate environment.

Fee Income Decrease

Fee income decreased by $3 million from the previous quarter, with ADR declining by 6% amidst a less favorable market environment, highlighting an area of concern for the bank.

Increased Deposit Competition

The competitive landscape for deposits intensified, leading to a slight increase in deposit costs. The average rate paid on interest-bearing deposits rose to 2.76%, indicating heightened competition in the deposit market.

CRE Balances Decline

CRE balances continued to decline due to payoffs of stabilized projects and nonperforming CRE loans, presenting a challenge for the bank’s commercial real estate segment.

Forward-Looking Guidance

First Horizon reiterated its commitment to achieving PPNR growth and maintained its full-year guidance. The bank aims to drive towards a 15% return on tangible common equity (ROTCE) over the next 2 to 3 years, supported by a strategic focus on balance sheet expansion and disciplined expense management.

In summary, First Horizon National’s earnings call conveyed a balanced sentiment, with strong profitability and growth tempered by challenges in net interest margin and deposit competition. The bank’s forward-looking guidance remains optimistic, with a focus on achieving significant returns on equity and maintaining robust capital management strategies.