Tennessee's biggest bank reported a 31 percent drop in earnings last year, but the results were still ahead of Wall Street expectations and officials predict the bank will gain this year from lower taxes and savings from its biggest bank acquisition.
First Horizon Corp., the parent company of First Tennessee Bank, said Friday it earned $165.5 million, or 65 cents per share, during 2017 and completed its merger in November with Capital Bank to position itself for higher profits in the new year.
First Horizon reported a fourth-quarter loss of $51.3 million, or 20 cents per share, after reporting a profit in the same period a year earlier. The loss stems from merger and tax related expenses, including employee bonus payments and more than $16 million contributed to the bank's foundation to take advantage of pending tax changes.
Many banks are taking charges in the fourth quarter as they get ready for 2018's lower tax rate, said analyst Jeff Davis of Mercer Capital in Nashville.
"There's going to be a lot of noise in the fourth quarter reports but investors shouldn't be alarmed," Davis said, noting federal tax cuts lower the value of banks' so-called deferred tax assets.
The results beat Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 29 cents per share.
The bank holding company posted revenue of $420.8 million in the period. Its adjusted revenue was $375.3 million, which did not meet Street forecasts. Six analysts surveyed by Zacks expected $385.2 million.
"The fourth quarter caps an outstanding and transformative 2017," Bryan Jordan, First Horizon's chairman and CEO, said in a statement Friday. "We closed our merger with Capital Bank, the largest in our company's history, significantly expanding our balance sheet, customers, markets and opportunities, all as we identified greater cost savings and revenue opportunities than originally announced."
Bryan said he expects to cut $85 million in annual expenses after fully integrating Capital Bank into First Horizon. The new tax law is expected to cut the effective tax rate for First Tennessee from 32 percent to 23 percent.
In recognition of the tax break, First Tennessee gave $1,000 bonuses to 70 percent of its 4,300 employees across the state.
First Tennessee is the biggest bank in Chattanooga with deposits as of June 30, 2017, of nearly $2.5 billion in metro Chattanooga.
First Horizon shares have climbed 1 percent since the beginning of the year, but the stock closed down slightly Friday, dropping by a nickel a share to $20.16. The stock has risen roughly 4 percent in the last 12 months.