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MEMPHIS, Tenn. (TheStreet) -- After First Horizon National's (FHN) - Get First Horizon Corporation Report 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.

Reynolds said First Horizon's total risk-based capital ratio of 21.6% was "the third-highest such ratio of any publicly traded bank in the U.S." The total risk-based capital ratio was more than twice the level required for most banks and thrifts to be considered


under regulatory guidelines.

First Horizon's stock has risen 81% since March 6, when the

S&P 500 Financials Index

bottomed. While its gain trails the returns of

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, whose shares have more than quadrupled, the important thing is to look forward.

First Horizon's shares were trading at 1.4 times tangible book value as of Friday's close, in line with its peers,

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analyst Craig Siegenthaler said in a report. They're priced at 7.1 times "normalized" annual earnings of $2, which is lower than the 7.8 times for its peer group. Siegenthaler said the shares had "almost 100% upside over the next two to three years."

First Horizon's strong capital levels and efforts to shift away from real estate have helped mitigate downside risk. While the shares haven't matched this year's higher flyers, First Horizon investors will be well positioned when the company becomes profitable again, repays the government and puts that capital war chest to work.

-- Reported by Philip van Doorn in Jupiter, Fla


Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.