First Horizon National Corp. is reaping the rewards of dealing with its credit-quality issues early in the financial crisis.
Though the Memphis company Friday posted its sixth straight quarterly loss, its credit trends are likely ahead of many other regional banking companies that were slower to react to rising losses, analysts said. Most of those companies will report earnings this week.
First Horizon scrambled to fix a national mortgage business that severely damaged its performance once the subprime mortgage crisis hit in 2007. The company got out of that business the next year and began a program to lower losses and restore capital, which helped to hasten its recovery.
"They have taken the bull by the horns and are well ahead of most banks in addressing their credit issues and in rebuilding their balance sheet, liquidity and capital," said Anthony Davis, an analyst with Stifel, Nicolaus & Co. Inc.
First Horizon's third-quarter net loss after paying preferred dividends was 24 cents a share, beating analysts' estimates by 8 cents. Excluding a gain from debt buyback and a noncash goodwill charge, the $26.5 billion-asset company's loss per share was 20 cents.
However, asset quality is stabilizing. First Horizon's loan-loss provision fell 28.8% from the second quarter, to $185 million; its net chargeoffs fell 15.8%, to $201.7 million; and nonperforming assets fell 1%, to $1.22 billion, or 6.38% of total assets.
"We're not ready to declare victory yet, but we definitely believe we're making progress," Bryan Jordan, the chief executive, said in a conference call Friday. Jordan — First Horizon's chief financial officer before succeeding Gerald L. Baker, who retired in September 2008 — has been instrumental in forging and executing the company's recovery strategy, analysts said.
Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co. Inc., wrote in a note Friday that First Horizon has continued to strengthen its balance sheet by winding down its national real estate portfolios. At the same time, it has focused on its core regional banking, capital markets and mortgage banking businesses.
"While weakness in its core" commercial real estate "portfolio is likely to pressure near-term regional banking earnings, we expect this pressure to abate as the economy improves," Patten wrote.
Moreover, First Horizon's national residential real estate lending portfolio, which had contributed to nearly 75% of the company's nonperforming assets, should be close to zero by yearend, Patten said.
"We feel strongly that First Horizon should return to profitability by the first quarter," he wrote.
First Horizon's better-than-expected credit-quality trends offset lower-than-expected revenue, Davis said. Net interest income fell 4.1% from the second quarter, to $190.9 million, in large part because of lower loan balances. Still, First Horizon's net interest margin rose 9 basis points from the second quarter, to 3.14%, because of a contracting balance sheet and lower deposit costs.
First Horizon continued to streamline its operations, with noninterest expenses declining 15% from the second quarter, to $349.9 million. Its efficiency ratio improved to 70.73%, from 83.28% in the second quarter.