First Horizon Turns a Corner: Is It Safe?

MEMPHIS, Tenn. (TheStreet) -- After First Horizon National's(FHN Quote) third-quarter results beat estimates last week, most analysts agreed the company was turning a corner.

Excluding $14.9 million in dividends paid to the Treasury for the government's $867 million of preferred stock, the Memphis, Tenn., holding company lost $52.9 million, or 24 cents a share. That's less than half the $125 million, or 58 cents, First Horizon lost during the year-earlier period and better than the 32-cent loss analysts expected, according to Thomson Reuters.

First Horizon's strategy to survive the credit crisis has been to wind down its national retail and wholesale mortgage businesses, shrink its balance sheet and focus on its home market in Tennessee.

While First Horizon's total assets declined 19% to $26.5 billion as of Sep. 30, total deposits were unchanged at $14.2 billion, thus lowering the company's reliance on wholesale funding.

The company increased its net interest margin to 3.1% from 3% a year earlier. The net interest margin is the interest and dividends earned on loans and securities investments minus the cost of funding.

Net charge-offs (actual loan losses) totaled $213 million, down from $250 million the previous quarter. The company's ratio of loan loss reserves to total loans was 5.1%, ahead of its annualized third-quarter net charge-off ratio, which was 4.2%.

Wunderlich Securities analyst Kevin Reynolds predicts First Horizon shares to rise by more than 25% to $17. He expects the company to repay government aid from the Troubled Asset Relief Program in six to 12 months.