First Horizon Corporation (FHN) is a financial and banking services company that operates in four segments: Regional Banking, Fixed Income, Corporate and non-Strategic. FHN is based in Memphis, Tenn. Umpqua Holdings Corporation (UMPQ) Portland, Ore., is a commercial banking and retail banking and brokerage service provider in the United States. The company operates through four segments: Wholesale Bank, Wealth Management, Retail Bank, and Home Lending.
While the prolonged low-interest-rate environment has negatively affected the interest income of regional banks, to a significant degree, the Fed’s latest projection of two potential interest hikes by late 2023 has rejuvenated investor interest in banks. Also, to the positive, banks’ lower interest income owing to the dovish monetary policies has been partially offset by the higher lending volumes.
On account of rising inflation concerns, St. Louis Federal Reserve President James Bullard and Boston Fed President Eric Rosenberg expect a benchmark interest rate hike in the second half of 2022. Regional banking companies FHN and UMPQ are poised to benefit substantially from such projected rate hikes.
FHN has gained 62.6% over the past year, while UMPQ has returned 64.7% over this period. However, FHN is the clear winner with 17.6% in gains versus UMPQ’s 13.7% returns in terms of year-to-date performance. In addition, shares of FHN have slumped 14.7% over the past three months, while UMPQ’s lost 5.6%.
But which stock is a better buy now? Read more to find out.
Latest Developments
FHN reported positive results from its 2021 bank Holding Company-run capital stress test. The company’s 8.25% minimum common equity tier-one capital ratio is above regulatory requirements. At the same time, its stressed loss rates and pre-provision net revenue compare well with the Federal Reserve’s published CCAR-bank medians. These capital adequacy metrics reflect FHN’s strong risk discipline and ability to remain operational during periods of economic stress.
UMPQ has been ranked #1 in the J.D. Power 2021 U.S. Retail Banking Satisfaction Study. In addition, the company is one of 13 U.S. financial institutions to earn a top regional ranking, owing to its services and customer support during the pandemic. In April, the company sold its investment advisory division Umpqua Investments, Inc. to Steward Partners Holdings, LLC.
Recent Financial Results
For its fiscal second quarter, ended June 30, 2021, FHN’s taxable-equivalent net interest income increased 62% year-over-year to $500 million. Its total revenues increased 53% from its year-ago value to $781 million. Its net income came in at $311 million, up 445.6% from the same period last year. And its adjusted EPS increased 190% from the prior-year quarter to $0.58.
UMPQ’s net interest income increased slightly year-over-year to $221.43 million in its fiscal first quarter ended March 31. Its non-interest income rose 167.7% from its year-ago value to $108.80 million. Its EPS came in at $0.49, up 106% from the same period last year.
Past and Expected Financial Performance
FHN’s revenues and net income have increased at CAGRs of 27.9% and 89.8%, respectively, over the past three years. In addition, the company’s EPS increased at a 53% CAGR over this period.
In comparison, UMPQ’s revenues have increased at a 4.2% CAGR over the past three years, while its net income increased at a 16.6% CAGR over this period. As a result, its EPS increased at a 16.6% rate per annum over this period.
Analysts expect UMPQ’s EPS to increase 83.3% in the second quarter (ended June 2021), 125.1% in its fiscal year 2021, and at a rate of 10% per annum over the next five years. Comparatively, FHN’s EPS is expected to rise 115% in the about-to-be-reported quarter, 45.9% in the current year, and at a 9.5% CAGR over the next five years.
UMPQ beat the Street’s EPS estimates in each of the trailing four quarters, while FHN missed in one.
Profitability
FHN’s trailing-12-month revenue is 2.59 times UMPQ’s. FHN is also more profitable, with a 39.89% net income margin, compared with UMPQ’s 34.12%.
Furthermore, FHN’s respective 9.33% and 1.95% ROE and ROA are slightly higher than UMPQ’s 16.81% and 1.52%.
Thus, FHN is more profitable here.
Valuation
In terms of non-GAAP forward P/E, FHN is currently trading at 7.83x, which is 22.1% lower than UMPQ’s 10.05x. In addition, FHN’s trailing-12-month Price/Sales and Price/Book ratios of 2.50 and 1.07, respectively, are significantly lower than UMPQ’s 2.97 and 1.42.
Moreover, FHN’s 3.14 trailing-12-month Price/Cash Flow multiple compares with UMPQ’s 6.28.
Thus, FHN is the more affordable stock here.
POWR Ratings
FHN has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. In comparison, UMPQ has a B overall rating, which translates to Buy. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Both the stocks have a B grade for Growth, which is consistent with their stable growth in financials over the past couple of years.
UMPQ has a C grade for Stability, which is justified owing to its 1.22 beta. FHN has a D grade for Stability, in sync with the stock’s relatively high 1.53 beta.
FHN is ranked #7 of 30 stocks in the Southeast Regional Banks industry. And UMPQ is ranked #4 of 49 stocks in the Pacific Regional Banks industry.
Beyond what we’ve stated above, we have also rated both the stocks for Value, Momentum, Sentiment, and Quality. Get all UMPQ ratings here. To view additional ratings for FHN, click here.
The Winner
FHN’s Chief Financial Officer William Losch is scheduled to retire on July 31. Losch has been instrumental in FHN’s growth and success over the past 12 years and has played a significant role in maintaining the company’s operations amid the pandemic.
Given his role in facilitating FHN’s growth over the past couple of years, analysts and investors are uncertain regarding the company's growth prospects following such a change in management. UMPQ, in comparison, is well-positioned to grow as a leading regional bank in the country and has won an award lately. Moreover, UMPQ’s relatively higher earnings growth estimates for 2021 make it a better investment bet now.
Our research shows that odds of success increase when one bets on stocks with an overall Strong Buy or Buy rating. Click here to view the top-rated stocks in the Southeast Regional Banks industry. Also, view the top-rated stocks in the Pacific Regional Banks industry here.
FNH shares were trading at $431.04 per share on Tuesday afternoon, up $6.07 (+1.43%). Year-to-date, FNH has gained 16.04%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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