First Horizon National Corp., holding company for First Tennessee Bank, missed earnings estimates by a penny in the first quarter.
But BJ Losch, chief financial officer of Chattanooga's biggest bank by deposits, said the results ultimately showed a "pretty good quarter with good progress overall," pointing to first-quarter seasonality as the culprit for the company's mixed results.
"From last year to this year we grew loans almost a billion dollars or over 10 percent year-to-year," he said. "Our core deposits were up almost that much as well."
Net interest income fell by $7 million from the fourth quarter, but remained flat over the year. Total revenue actually increased by $11 million over the year to $376 million, an increase of $18 million from the prior quarter.
Operating income, however, fell slightly to 12 cents per share, or about $34 million, missing expectations of 13 cents per share.
"There's some seasonality, but year-to-year there's great progress," Losch said.
Ken Zerbe, a bank analyst for Morgan Stanley, said the drop was mainly due to "mortgage putback costs" and higher compensation expenses at the bank, which maintains $25 billion in assets.
Mortgage putbacks are the forced repurchase of a mortgage loan by the bank that made it, sometimes due to fraudulent or faulty documents that misrepresent a homebuyer's creditworthiness. When the loans are packaged up, sold as securities and later don't perform as advertised, burned investors often want their money back.
"This was a challenging quarter for [First Horizon]," Zerbe wrote. "Its earnings growth prospects, driven by declining operating expenses and environmental costs, are offset by risks of mortgage putback expense remaining elevated and higher credit losses in its still large, albeit declining, nonstrategic portfolio."
The bank, on the other hand, signaled to investors that it had confidence in its brand by announcing it would double its share buyback program to $200 million, which Losch said reflected "a pretty bullish feeling" at the bank, which "believes we have a strong capital base and balance sheet."
Locally, First Tennessee's Chattanooga operations are in solid shape, according to Chattanooga market president Keith Sanford.
"We're continuing to grow market share in East Tennessee, and we're starting to see the local market pick up," he said.
The bank's distressed and foreclosed assets are down by a quarter over the year, and lenders are starting to see housing demand pick up, he said.
"We're seeing more demand, a little more confidence, and people are starting to make some capital improvements and acquisitions," he said.
However, the homebuilding and construction segments are "still hurting," Sanford added.
Shares of First Horizon fell by 10 cents a share Friday to close at $9.08 per share.