First Horizon 'turning corner'

Oct 17, 2009 (The Commercial Appeal - McClatchy-Tribune Information Services via COMTEX) -- FHN | Quote | Chart | News | PowerRating -- First Horizon National Corp. reported a smaller loss than expected Friday as the Memphis-based bank was buoyed by a 46 percent decrease in provisions for bad loans.

The parent company of First Tennessee Bank reported a third- quarter loss of $52.9 million, or 24 cents a share, cutting in half the losses of $125 million, or 58 cents a share, a year earlier.

Third-quarter revenue dropped 5 percent to $494.7 million.

The performance easily beat Wall Street's expectations, which targeted a loss of 32 cents a share on revenue of $504 million.

"This is a company that is clearly turning the corner, making tangible progress," said Kevin Reynolds, bank analyst at Wunderlich Securities. "They are a few quarters away from emerging as one of the strongest banks in the country."

The company has been aggressively "de-risking" its balance sheet -- getting rid of bad loans.

"Considering ongoing uncertainty in the economy, we are not ready to declare victory yet, but we definitely believe we are making progress," First Horizon CEO Bryan Jordan said during a conference call with analysts.

Like banks nationwide, First Horizon has been hammered by losses on residential real estate and commercial loans as house prices have plummeted during the recession.

The bank, which received $866 million from the Troubled Asset Relief Program last October, reported that its provision for bad loans fell to $185 million from $340 million a year ago.

Net charge-offs were $201.7 million in the quarter.

"We are continuing to aggressively de-risk and strengthen the balance sheet as we wind down the national businesses," said chief financial officer William "BJ" Losch.

"We believe we are on track to return our company to long-term sustainable profitability and growth," Losch said. "We've talked about the key drivers to getting there, and they largely played out in the third quarter."

So the bank is continuing to make progress unloading bad loans -- most of which are the result of the previous management team pursuing a national lending strategy several years ago.

Since then, the bank has been aggressively scaling back to its core businesses, including regional banking and capital markets, and slowly working through its non-core portfolios like mortgages and national specialty lending.

"Those portfolios are really starting to run off now," said Adam Barkstrom, managing director of equity research at Sterne Agee. "The one offset to the positive results is that they did report weakness within some of their core portfolios."

Still, Barkstrom said First Horizon is a bright spot in an otherwise underperforming financial sector Friday.

Bank stocks fell sharply early Friday after Bank of America Corp. said it lost more than $2 billion in the third quarter, steeper than what analysts had been expecting.

The bank said its losses from failed loans came to almost $10 billion -- a reminder that business and consumers are still struggling to pay off their debts.

Bank of America's results followed reports earlier this week from Citigroup Inc. and JPMorgan Chase & Co., which also showed higher loan losses.

Reynolds said First Horizon is four to six quarters ahead of its peer banks in cleaning up its balance sheet.

"If this recession, this stagnation and the loan losses continue through 2010, then it is not inconceivable that First Horizon will have clearly emerged from the cycle and crossed the break-even level from a bottom-line perspective two or three quarters ahead of their peers," he said. "So if we all agree that we will get through this cycle by the fourth quarter of 2010 or first quarter of 2011, First Horizon will be there by midyear (2010) or earlier."

Shares of First Horizon closed at $13.50 Friday. The stock is up more than 35 percent this year.

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