First Tennessee reaps windfall, slashes costs

First Tennessee reaps windfall, slashes costs

July 19th, 2014 by Ellis Smith in Business Around the Region

The First Tennessee Bank building is located between Market and Broad Streets in downtown Chattanooga.

The First Tennessee Bank building is located between...

Photo by John Rawlston /Times Free Press.

First Horizon Corp., the holding company for First Tennessee Bank, nearly doubled its net income in the second quarter, growing earnings to $76 million from the $40 million in the second quarter of 2013.

Though some of the bank's key indicators continued to slip amid general economic weakness and regulatory pressure, and some of its earnings arose from a one-time windfall, bank officials say the future is bright amid a general commercial lending expansion, and renewed economic prospects in Chattanooga, thanks to the recently-announced Volkswagen expansion.

Net interest income, the largest source of revenue for Tennessee's biggest bank, fell slightly during the year to $156.7 million from $160 million the prior year, the company slashed non-interest expenses 27 percent to $165.3 million, which helped offset other declines.

"Consumer loans are pretty flat," said Keith Sanford, market president for First Tennessee.

Commercial loans, however, are a continuing bright spot for the bank, which has opened various non-branch offices in new markets like Charleston, S.C., Jacksonville, Fla., and Houston, Tex. to drum up new business, without the expense associated with new branches.

"We have been able to grow our commercial loan portfolio year over year at almost 12 percent," said Sanford, speaking of the bank's East Tennessee region. "That's either existing customers borrowing more money because times are a little better, or taking customers from some other bank, or new customers with new opportunities."

Yet the primary driver of the company's good fortune in the second quarter was a one-time $47 million payday as part of a settlement with insurance companies relating to risky securities the bank sold during the recession.

If not for the settlement, which yielded $31 million after taxes, First Horizon would have earned $45 million in net income available to common stockholders, still up from the $40 million the bank earned during the same period in 2013, Sanford said. The adjusted per-share earnings of 19 cents per share outpaced analysts' average forecast of 16 cents per share for the quarter, helping to boost First Horizon shares Friday by 25 cents per share, or nearly 2.2 percent, to close the day at $11.72 per share in trading on the New York Stock Exchange.

Moving forward, First Tennessee, which maintains a large portfolio of assets, will benefit from any action the U.S. Federal Reserve takes that results in higher interest rates. While such an action could hurt slightly decrease the number of consumers seeking a loan, it will be more than offset in higher earnings off existing assets, Sanford said.

But regardless of how the Fed behaves, First Tennessee is on an upward lending trajectory, said Kim Cherry, executive vice president of corporate communications for First Horizon.

"Our bankers are doing really good work in the markets where we're somewhat of a new face, a new name," Cherry said. "They're beginning to build those types of relationships that Keith and his bankers here in Tennessee have enjoyed for 150 years."

Contact staff writer Ellis Smith at 423-757-6315 and with tips and documents.