First Horizon posts narrower-than-expected 1Q loss as it sets aside less money for bad debt

First Horizon 1Q loss shrinks with bad debt cost

NEW YORK — First Horizon National Corp. on Friday reported a narrower-than-expected first-quarter loss as the Tennessee regional bank again set aside less money to cover bad debt.

First Horizon has been working to improve its credit-related costs and focus primarily on its core regional banking franchise and capital markets business. The Memphis company, which received $866 million in 2008 from the government’s $700 billion bank bailout package, continues to reduce its construction loan portfolio in an effort to cut loan losses and closed its institutional equity research business.

For the January-through-March period, First Horizon posted a loss after paying preferred dividends of $27.7 million, or 12 cents per share, compared with a year-ago loss of $82.8 million, or 37 cents per share.

The latest period was helped by a $17.1 million gain from buying back debt and a 65 percent drop in its loan loss provision to $105 million from $300 million a year earlier. In the fourth quarter, First Horizon set aside $135 million to cover bad loans.

Revenue fell 28 percent to $428.7 million from $595.9 million as net interest income slipped 8 percent. Net interest income is the difference between how much it costs a bank to borrow money and how much interest it receives from lending money to customers.

Analysts surveyed by Thomson Reuters, on average, had expected a loss of 16 cents per share on slightly higher revenue of $436.3 million.

While bad debt provisions declined, net charge-offs — loans the bank doesn’t think will be repaid — rose to 4.13 percent of the bank’s loan portfolios. That’s up slightly from 4 percent in the fourth quarter and 3.97 percent in the year-ago quarter.

The amount of non-performing assets, or loans in default, rose to 5.63 percent from 5.56 percent in the fourth quarter, but were below the 5.98 percent reported in the 2009 period. First Horizon said total average assets declined to $25.6 billion from $26.4 billion at the end of 2009, as it continued to wind down non-core loan portfolios.

“The economic recovery won’t be a straight line, but we’re doing what we said we would do to move toward sustained profitability,” First Horizon CEO Bryan Jordan said in a statement. “We’re also making strategic hires as we work to increase market share in our businesses.”

Morgan Keegan analyst Robert S. Patten said First Horizon “continues to make steady but slow progress, but our concern is increasing that investors may become impatient in lieu of current valuation and take profits.”

Shares of First Horizon had peaked Thursday at a 52-week high of $15.86 before the earnings announcement. But the stock fell $1.07, or 7 percent, to $14.25 in Friday trading amid profit-taking and a drop in the broader market.

In order for the company’s share price to move higher, Patten said management will need to clarify its timing for a return to profitabilty and plans to repay TARP bailout funds. He also said investors will be looking for guidance on how the bank plans to grow beyond its Tennessee footprint.

Patten downgraded First Horizon shares to “Market Perform” from “Outperform,” citing tepid loan growth prospects amid a soft economy. But he said weak loan growth should be partly offset by continued credit improvement in the bank’s portfolio.

Patten added that First Horizon’s quarterly performance “reaffirmed” his view that the bank could return to profitability as early as the third quarter.