First Horizon's Cost Containment Continues - Analyst Blog

On Jun 9, 2014, we issued an updated research report on First Horizon National Corporation FHN. This Tennessee-based bank has exhibited disciplined expense management in the recent quarters.

Given the competitive environment in the industry, regulatory restrictions and higher capital requirement, cost control measures have become a priority in the banking space. First Horizon has been undertaking cost control efforts to achieve operational efficiency and drive profitability.

Excluding certain non-recurring charges, First Horizon's total non-interest expenses declined consecutively in the last three quarters. Also, for the full year 2013, the company recorded a 16% year-over-year decline in non interest expenses. Notably, the company achieved its goal of reducing annualized consolidated expenses to about $1 billion by the end of 2012, a year earlier than its initial target.

Further, 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 is in process of reallocating capital into its core markets and thereby aims to improve top line.

We remain optimistic about the efforts being taken by the company and believe it possesses better growth prospects in the long run.

Despite the positives, we remain cautious owing to several issues faced by First Horizon that pose a threat to the company's financials. These include a shrinking revenue base with decline in interest income and fee income, lingering mortgage repurchase issues and the prevailing stringent regulatory landscape.
 
Analysts' mixed stance on the stock was reflected in the movement of the Zacks Consensus Estimate over the past 60 days. For 2014, the Zacks Consensus Estimate advanced 2.9% to 71 cents per share while it fell 3.5% to 82 cents for 2015.

First Horizon currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Capital City Bank Group Inc. CCBG, Customers Bancorp, Inc. CUBI and Middleburg Financial Corporation MBRG are among the better-ranked stocks in the Banks – Southeast space. All these stocks sport a Zacks Rank #1 (Strong Buy).