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10 Banks That Still Owe TARP

NEW YORK ( TheStreet) -- Despite the continual gloomy talk about the banking industry, nine out of the ten bank holding companies owing the most bailout money for government assistance through the Troubled Assets Relief Program, or TARP, have made remarkable comebacks this year, although the lot are still trading at historically low valuations to tangible book value.

10. First Horizon

Company Profile

Shares of First Horizon National Corp. (FHN - Get Report) of Memphis, Tenn. closed at $11.25 Wednesday, down 13% year-to-date. The company owes $866.5 million in TARP money.

Please see Laurie Kulikowski's coverage of First Horizon's Long Road Back for a look at the company's business strategy.

Income Statement

First Horizon returned to profitability in the second quarter, reporting net income available to common shareholders of $2.7 million, or a penny a share, following a first-quarter loss to common shareholders of $27.7 million, or 12 cents a share, and a loss of $123.2 million, or 54 cents a share, a year earlier. Net income available to common shareholders excludes dividends paid to preferred shareholders (including the government, which holds preferred shares for the TARP money), which came to $14.9 million during the second quarter.

Following the trend for many large banks that reported a boost to second-quarter earnings through releases of loan loss reserves, First Horizon's provision for loan losses was $70 million while net charge-offs - loan losses less recoveries - totaled $133 million during the second quarter. The "earnings release" during the second quarter was $63 million.

Balance Sheet

According to regulatory data supplied by SNL Financial, First Horizon had $26.3 billion in total assets as of June 30. Nonperforming assets - including loans past due 90 or more days or in nonaccrual status and repossessed real estate - comprised 3.89% of total assets as of June 30, down from 4.52% the previous quarter and 4.83% a year earlier.

In comparison, the aggregate "noncurrent assets" ratio for all U.S. banks and thrifts reported by the Federal Deposit Insurance Corporation was 3.31% as of June 30.

First Horizon's annualized ratio of net charge-offs to average loans for the second quarter was 3.02%, declining from 4.13% during the first quarter and 4.62% during the second quarter of 2009. The national aggregate net charge-off ratio for the second quarter was 2.64% according to the FDIC. Loan loss reserves covered 4.42% of total loans as of June 30.

While First Horizon's net interest margin - essentially the difference between a bank's average yield on loans and investments - followed the industry trend in the low interest rate environment, increasing to a tax-adjusted 3.19% for the second quarter from 3.06% a year earlier. The national aggregate net interest margin for the second quarter was 3.81% according to the FDIC, increasing from 3.43% a year earlier.

As of June 30, First Horizon's Tier 1 leverage ratio was 13.74% and its total risk-based capital ratio was 21.34%, well-above the 5% and 10% required for most banks to be considered well-capitalized by regulators and the highest regulatory capital ratios among this group of ten holding companies.

Of course, regulatory capital includes the TARP money. As discussed in TheStreet's Bank Stocks: Taking Off the Rose-Colored Glasses, investors and analysts have focused during the credit crisis on banks' tangible common equity ratios, which exclude all preferred and trust-preferred equity classes. Analysts typically consider 7% to be a good level of tangible common equity for a profitable bank in the current environment. First Horizon's TCE ratio as of June 30 was 7.63%.

Stock Ratios

Shares trade for 1.3 times tangible book value, which would have been considered quite low before the crisis but is actually on the high-side for this group of ten bank holding companies. Looking at share price multiples to forward earnings, First Horizon trades for 24.5 times the 2011 consensus earnings estimate of 46 cents a share among analysts polled by Thomson Reuters. The shares trade for 11.8 times the 2012 consensus earnings estimate of 95 cents a share.

Analyst Ratings

Out of 24 analysts covering the shares, nine rate First Horizon a buy, 14 recommend holding the shares and one analyst recommends investors sell the shares.
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