First Horizon Corp. in Memphis, Tennessee, downplayed a large third-quarter charge-off, calling it "idiosyncratic" and emphasizing solid credit quality otherwise as the bank pursues loan growth following a failed merger attempt earlier this year.
But the $85 billion-asset regional bank's earnings endured a sizable blow from the $72 million loan loss. It drove a $60 million increase in provision expenses to $110 million for the third quarter, trimming 10 cents off earnings per share. It reported net income of $142 million, or 23 cents per share, down from $268 million, or 45 cents, a year earlier.
The bankruptcy and liquidation of Mountain Express Oil, which owned dozens of gas stations and sold fuel to hundreds of others, was the culprit. First Horizon led a
As more regional banks report, "with credit back at top of mind, any deterioration could spook investors," said Scott Siefers, an analyst at Piper Sandler.
First Horizon's shares, however, climbed 4% after the company posted its results Wednesday morning. Analysts noted the company had preannounced it would take a sizable charge-off, and investors were relieved it was isolated. Other third-quarter charge-offs totaled about $23 million, in line with recent quarters.
Aside from the one loss, "the balance sheet continues to perform very well," Bryan Jordan, CEO of First Horizon, said during the earnings call.
Analyst Brian Foran of Autonomous Research also noted First Horizon said it expects to maintain low charge-off levels in coming quarters even as it grows loans and interest income in an uncertain economic environment that is clouded by lofty interest rates and stubbornly high inflation.
The company said it is building fresh lending momentum after hovering in a holding pattern of sorts earlier this year as it awaited an anticipated merger with TD Bank Group. That deal, however, was
The deal,
First Horizon said it grew loans 1% during the third quarter to $61.8 billion. The bank said that, aside from mortgage declines, growth was diversified across markets and business lines.
Still, steeper funding expenses weighed on margins. Net interest income of $605 million was down 4% in the quarter, as the benefits of higher loan rates and loan balances were more than offset by higher deposit costs. First Horizon, like most banks, has paid increasingly higher rates in recent quarters to keep and grow deposits following 11 Federal Reserve rate hikes since early 2022.
Total deposit costs of 244 basis points climbed 71 basis points in the quarter. The bank's net interest margin fell 21 basis points during the quarter to 3.17%.
Still, the company did grow average deposits 8% in the quarter and it expects to deploy that funding into stronger loan growth in a Southeast footprint that, to date, has proven economically resilient.
First Horizon now projects full-year 2023 average loans to increase 7% to 9% from the prior year, up from a previous estimate of 3% to 5%. It projected net interest income growth of 6% to 9% for the year.
"Our success in raising deposits has enabled us to organically deploy excess capital into meeting our clients' borrowing needs and strategically acquiring new clients," Chief Financial Officer Hope Dmuchowski said on the call.
