"We have seen significant improvement in credit quality,'' said the company's CEO, Bryan Jordan. "We are just seeing our commercial borrowers track with an economic recovery in Tennessee. I'm optimistic."
The parent company, First Horizon National Corp., said it made a $2.7 million profit, or 1 cent per share, in the second quarter, compared with a loss of $27.7 million in the prior quarter and a $123 million loss in the April-June period a year ago.
Analysts by and large hadn't expected a profit until the end of the year. According to Thomson Reuters, the average analyst's expectation for the second quarter was a loss of 9 cents per share.
First Horizon executives said the turnaround in the quarter was mostly due to borrowers' improved ability to pay their loans, especially commercial clients.
Bank employees have been working for more than a year to get rid of bad construction and mortgage loans made during the height of the housing boom that later turned to bust. Many of those loans were outside Tennessee.
The crisis led to layoffs, office closures and a significantly smaller banking company. The bank had $26.2 billion in assets at the end of the second quarter, about $11 billion less than at the end of 2007.
Jordan said the bank continues to face pressure from low interest rates and diminished demand for loans. Plus, financial reform passed by the Senate on Thursday probably will have some impact on the bank's practices and fees, although much of it is undetermined at this point.
Also, the bank faces possible additional fallout from mortgage loans made before the financial crisis, building a reserve of about $162 million to meet demands by mortgage insurers and others that it buy back bad loans that the clients say didn't meet underwriting standards.
Meanwhile, to save costs, the bank is moving about 60 or 70 employees from outlying offices to its flagship building at 511 Union St. in downtown Nashville, said Middle Tennessee market President Doyle Rippee. He said most of those moving are in the 2525 West End Ave. office complex, mostly wealth management and corporate banking employees.
Loan record brightensThe bank said it shaved its loan loss provision for bad loans by $35 million to $70 million during the quarter. Nonperforming loans also declined for the fifth consecutive quarter, to $790.5 million.
Wunderlich Securities banking analyst Kevin Reynolds predicted Friday in a note to investors that First Horizon would improve its bottom line results "several quarters ahead of its peers."
Sandler O'Neill & Partners analysts said in a note that the company might even buy up smaller regional banks "that will increasingly face a more challenging operating/regulatory environment."
But the news was overshadowed by a downturn in the stock market overall as consumer sentiment faltered and money center giants Bank of America and Citigroup disappointed investors.
First Horizon's stock fell 32 cents to $11.79 per share in New York Stock Exchange trading as major indexes fell 2.5 percent to 3 percent.
Contact Naomi Snyder at 615-259-8284 or nsnyder@tennessean.com.
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