First Horizon 4Q profit reflects focus on traditional banking

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First Horizon National in Memphis, Tenn., reported solid quarterly profit that reflected a focus on traditional banking.

Net income available to shareholders, which takes into account dividends on preferred stock, totaled $96 million in the fourth quarter. A year earlier, the company reported a $52.8 million loss that reflected the impact of tax reform.

“Nothing we see in the economy … causes us concern in 2019,” Bryan Jordan, First Horizon's chairman and CEO, said during a Friday conference call to discuss quarterly results. “They’ve got strong balance sheets and we’re seeing strong activity.”

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BJ Losch, First Horizon's chief financial officer, called last three months of 2018 a "Goldilocks" quarter. New loans “came in the areas of lending we want to see grow — core bread-and-butter lending,” he said on the call.

The $40.8 billion-asset First Horizon added about $370 million of core commercial loans during the fourth quarter.

“Our core commercial lending is very solid, with great credit quality and strong risk-adjusted returns,” Losch said.

Stephen Alexopoulos, an analyst at JPMorgan Securities, commended management during Friday's call for having the “strongest commercial and industrial growth in many years.”

First Horizon’s commercial real estate portfolio fell by 1% from a quarter earlier because of a heavy volume of prepayments, finishing 2018 at $4.2 billion. But Losch said that CRE pipelines remain strong and that the company expects to recoup the lost volume in a few months.

Deposits increased by 7% from a year earlier, to $32.7 billion. About $1 billion of that growth came in the fourth quarter as the company began seeing results from an effort to add clients in the markets it entered as part of its $2.2 billion acquisition of Capital Bank Financial in December 2017.

The new deposits allowed First Horizon to reduce its dependence on brokered CDs. Losch said the company, which canceled contracts for $200 million of CDs, expects to cancel more in the first quarter.

Issues with two commercial loans led to a 50% increase in net charge-offs from a year earlier, to $12 million. While the net charge-off ratio was 0.17% in the fourth quarter, it remained well below the company’s target range of 0.2% to 0.6%.

Charge-offs should remain at or below the low end of the target range this year, Susan Springfield, First Horizon's chief credit officer, said during the conference call.

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