First Horizon Shares Weaker On A Less Distinguished Third Quarter

Oct. 18, 2019 9:02 AM ETFirst Horizon Corporation (FHN)2 Comments
Stephen Simpson profile picture
Stephen Simpson


  • First Horizon's third-quarter results weren't bad, but the Street didn't like the NIM miss, nor the higher credit losses.
  • First Horizon's trading business is providing a counter-cyclical boost, and although the mortgage warehouse lending boom-let may be ending, cost leverage is still possible.
  • Low- to mid-single-digit long-term core earnings growth can support a high teens fair value, and First Horizon should continue to grow PPOP despite sector-wide spread compression in 2020.

First Horizon (NYSE:FHN) still doesn't seem to be getting its due, but arguing with the market only gets you so far in the short term. Although the shares had done slightly better than the peer group going into the quarter, a sell-off on the earnings report has pulled the relative performance back to the peer group.

I continue to believe that First Horizon has some useful near-term offsets to spread pressure, including a counter-cyclical trading business and cost leverage, and I like the long-term ramifications of a management team that is keenly focused on out-earning its cost of capital in all parts of the business. These shares could languish without beat-and-raise quarters, but I believe they trade at a double-digit discount to fair value and offer appeal for more patient investors.

A Back-To-Earth Performance That Disappointed The Street

First Horizon didn't have a bad quarter, its core earnings were a penny above expectations, but the report was definitely less exciting than the second-quarter result, and investors didn't like the weaker trends in spread margin and credit.

Revenue rose 7% yoy on a core basis and 2% qoq, coming in about 2% above expectations. Net interest income declined close to 2% in both periods, missing expectations slightly due to a weaker NIM - down 5bp qoq on a core basis and 13bp on a reported basis and about 6bp lower than expected.

Spread compression was expected, but First Horizon saw lower purchase accounting accretion than expected and lowered its forward NIM guidance by about 5bp. Loan yields declined 22bp qoq, while total deposit costs declined only 2bp. First Horizon's deposit cost experience was consistent with what I've seen from other banks this quarter, but the loan yield weakness was more pronounced.

Fee income jumped more than 26% yoy and about 9% qoq, and this

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (2)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.