First Horizon (FHN) Q1 Earnings Beat, Year-Over-Year Revenue Decline – April 20, 2022

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First Horizon National Societyit is (FHN Free Report) first-quarter 2022 adjusted earnings per share of 38 cents beat Zacks’ consensus estimate of 34 cents. However, the figure was down 25% year-on-year. Results exclude after-tax impacts of 4 cents per share from notable items related to the IBERIABANK Corporation and TD-Bank merger transactions.

The results reflect a higher loan balance, provisioning benefits and lower expenses. However, lower net interest income (NII) and commission income affected revenues. In addition, pressure on margins due to low interest rates has been a spoilsport.

Net income attributable to common shareholders was $187 million, down 17% year-over-year.

Income and expenses fall, loans rise

Total revenue was $707 million, down 12% year-over-year. Nevertheless, revenue exceeded the consensus estimate of $704.4 million.

The NII was down 6% year over year to $479 million. Additionally, the net interest margin decreased by 25 basis points (bps) to 2.37%.

Non-interest revenue was $229 million, down 23% from a year ago.

Non-interest expense decreased 9% year over year to $493 million.

The efficiency ratio was 69.66%, up from 67.53% the previous year. An increase in the efficiency ratio indicates a decrease in profitability.

Total period-end loans and leases, net of unearned income, were $55.01 billion, up slightly from the end of the prior quarter. Total period-end deposits of $74.11 billion were down 1% from the prior quarter.

Credit quality is deteriorating

Non-performing loans and leases of $332 million decreased 16% from the prior year period. Additionally, as a percentage of period-end loans on an annualized basis, the allowance for loan losses was 1.33%, compared to 1.56% in the prior year quarter.

Provision for credit losses was a profit of $40 million compared to a profit of $45 million in the year-ago quarter. The first quarter saw net charges of $10 million, up from $8 million in the prior year quarter. In addition, the provision for loan and lease losses of $622 million increased 32% compared to the same period last year.

Mixed capital position

The Tier 1 leverage ratio was 8.8%, compared to 8.2% the previous year. As of March 31, 2022, the Common Equity Tier 1 ratio was 10%, stable compared to the previous quarter.

However, the total capital ratio was 13.2%, down from 12.8% in the prior year quarter.

Our point of view

First Horizon benefits from an attractive geographic presence and growing loan outstandings. The company’s inorganic expansion efforts and moves to strengthen the core banking franchise will also support financial services. It has fully integrated systems related to the merger of IBERIABANK Corporation in February 2022 and aims to achieve $200 million in annualized net savings by the fourth quarter of 2022. It has achieved $116 million in annualized net savings in the first quarter of 2022.

First Horizon currently carries a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other banks

PNC Financial Services Group, Inc. (ANC Free Report) delivered an 18.4% surprise on Q1 2022 earnings on the back of a substantial recovery from credit losses. Earnings per share of $3.29, on an adjusted basis (excluding pretax integration costs related to the acquisition of BBVA USA), beat Zacks’ consensus estimate of $2.78. However, net income was down 20% year over year.

The rise in the NII, driven by interest-earning assets and loan growth, was a tailwind for PNC Financial. However, higher expenses and lower deposits weighed on results.

American bank (USB Free Report) reported Q1 2022 earnings per share of 99 cents, which beat Zacks’ consensus estimate of 93 cents. However, the results do not compare favorably to the $1.45 figure in the prior year quarter.

US Bancorp’s results were supported by higher revenue, loan growth and lower non-performing assets. USB’s capital position was decent during the quarter. However, higher expenses and a high provision for credit losses were offsetting factors.

Fifth Third Bancorp (FITB Free Report) reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, excluding Zacks’ consensus estimate of 70 cents. Including the impact of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.

Fifth Third’s performance shows lower revenues mainly due to lower commission income. Shrinking margins and deteriorating capital position were spoilsports for FITB.

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