First Horizon National Corp. said declines in problem assets may have hit a temporary wall, with further improvement possibly on hold until mid-2011.
The $25.4 billion-asset Memphis company said progress on nonperforming assets may be stymied over the short term because of continued deterioration in commercial real estate (CRE). Much of First Horizon's past progress had come in portfolios tied to businesses it had exited in prior years such as its national specialty lending business.
D. Bryan Jordan, the company's chief executive, still sounded upbeat about the company's credit outlook during a conference call with analysts Friday. "Overall, we believe that our credit quality trend will be improved," he said.
"Our proactive approach to credit has allowed us to get on our front foot," he added, noting that credit trends were vastly improved from a year earlier.
Nonperforming assets edged up 2% from the second quarter but fell 25% from a year earlier, to $919.2 million. The company said much of the increase from a quarter earlier was tied to "a handful" of big credits and fewer payoffs. Other credit metrics were more encouraging. Net chargeoffs fell 16% from the second quarter and 45% from a year earlier, to $111.4 million. The loan-loss provision fell 29% from the second quarter and 73% from a year earlier, to $50 million.
The lower provision expense helped First Horizon post its second straight profitable quarter; it earned $15.9 million, or 7 cents a share. Analysts had expected a loss of 2 cents a share, according to Thomson Reuters.
"We're able to concentrate on new customer acquisitions and retention, with improved underwriting, better pricing, and continued great service," Jordan said. Though the loan portfolio shank 1% from the prior quarter, Jordan said that First Horizon is in the running for $1 billion of loans that could be added to the balance sheet over the next two or three quarters.
"There's a good chance to close the loans, but we understand that these are competitive deals and we may or may not win," he said. "But the pipeline has been stable to steady."
Another area First Horizon is keeping an eye on is private-label mortgage securities. Though repurchasing activity has been"negligible" compared with what has occurred with Fannie Mae and Freddie Mac, executives said they are closely monitoring the situation with $16 billion of such securities.