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First Horizon's Long Road Back

"We think [First Horizon's] achievement of a headline profit in [the second quarter] is notable in that it highlights the underlying progress made by management in the long-term overhaul of the company's balance sheet, business mix/franchise, and core earnings power," Fitzsimmons said. He rates First Horizon at buy.

But how exactly does First Horizon plan to silence the naysayers?

The bank's move to bring it all back home and grab market share in Tennessee looks like a sound one. First Horizon has the ability to take market share from its small community bank competitiors by simply hiring more bankers and acquiring their client relationships.

CFO Losch also believes there are growth opportunities in the Tennessee economy.

"We're seeing it in our corporate segment, with larger companies that are sitting on a lot of cash and have the opportunity to start to take share in their own industry and so we're seeing some good pipeline and opportunities there," Losch says.

He specifically mentioned the commercial real estate sector.

"We only have 10% of our portfolio in that, but we're seeing very well documented, well priced, well structured deals with a lot of equity put in by the developer that we think are great opportunities for us going forward."

Listen to Losch's thoughts on the outlook for the Tennessee economy.

Spectrum Management's Phillips isn't buying it just yet.

"The real estate market is going to be a tough place to do business for the next several years. How do they become a commercial lender? How do they tend to replace real estate loans as they run off or are written off to generate future profitability?," he says. "How long will it take this company to generate a profit and have a dividend again and have stable cash flow? I'm just not sure it's far enough along to warrant investing in it."

First Horizon's other engine for growth may end up being M&A -- both within and outside of its home state, CFO Losch says. While the regional bank cannot make a move until it returns X amount of taxpayer money to the government; even without TARP, First Horizon is one of the best capitalized banks in the country. It raised $660 million through a common stock offering in the spring of 2008, and its Tier 1 capital ratio stood at 16.77% as of June 30, up from 15.55% a year earlier.

FIG Partners, an Atlanta-based investment firm that provides research on financial companies, gives First Horizon kudos for keeping excess capital on the books and thinks an eventual deal is a real possibility. The firm lifted its rating on the stock to "outperform" following the second-quarter report.

"While management is cautious about economic uncertainty and lingering credit workouts (albeit at an improved loss pace), FHN is in a strong position for both organic EPS results and improved returns as well as strategic growth via acquisitions," FIG told clients. "The company appears to be in zero hurry to use its excess tangible capital, which we think investors should appreciate."

First Horizon's Losch also thinks bank consolidation is in the offing, citing the "confluence"of factors like "financial reform, slow growth in the economy, limited opportunities, and structural changes in the industry."

"We feel very well positioned to put our capital to work that way as well," he said.

Listen to more on First Horizon's M&A plans.

But in the near term, Losch and others acknowledge that it will be a tough slog for the regional bank.

"Although the second quarter's return to profitability demonstrates the significant progress made by this management team, uncertainty surrounding near-term growth outlook, as well as earnings headwinds from mortgage repurchases keeps us on the sidelines for now," writes Bob Patten, an analyst who covers regional banks at Morgan Keegan, a unit of Regions Financial.

Patten thinks the stock will need a catalyst to make a strong move higher, listing "some form of capital deployment, either in the form of an acquisition or a reinstatement of the cash dividend (after repaying TARP)," as an example.

So while everyone seems to agree the bank looks solid over the long haul, the stock, which is already down nearly 13% year-to-date, may be stuck at the crossroads for a while longer before it's able to follow the company in one direction or the other.

--Written by Laurie Kulikowski in New York.

Stock quotes in this article: FHN, WFC, RF 
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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