First Horizon National Corporation (FHN)

FHN 
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First Horizon National (FHN)

Q4 2012 Earnings Call

January 18, 2013 9:30 am ET

Executives

Aarti Bowman

D. Bryan Jordan - Chairman, Chief Executive Officer, President, Member of Executive & Risk Committee, Chairman of First Tennessee Bank National Association and Chief Executive Officer of First Tennessee Bank National Association

William C. Losch - Chief Financial Officer, Executive Vice President,Chief Financial Officer of First Tennessee Bank National Association and Executive Vice President of First Tennessee Bank National Association

Susan Springfield - Chief Credit Officer

Analysts

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Paul J. Miller - FBR Capital Markets & Co., Research Division

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Nicholas Karzon

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Emlen B. Harmon - Jefferies & Company, Inc., Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division

Christopher W. Marinac - FIG Partners, LLC, Research Division

Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division

David J. Bishop - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Horizon National Corporation Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions]

As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Ms. Aarti Bowman. You may begin.

Aarti Bowman

Thank you, operator.

Please note that the press release and financial supplement which announced our earnings, as well as the slide presentation we'll use in this call this morning, are posted on the Investor Relations section of our website at www.fhnc.com.

In this call, we will mention forward-looking and non-GAAP information. Actual results may differ from the forward-looking information for a number of reasons outlined in our earnings announcement materials and in our most recent annual and quarterly reports.

Our forward-looking statements reflect our views today, and we are not obligated to update them. The non-GAAP information is identified as such in our earnings announcement material and in the slide presentation for this call, and it is reconciled to GAAP information in those materials. Also, please remember that this webcast on our website is the only authorized record of this call.

This morning's speakers include our CEO, Bryan Jordan; and our CFO, BJ Losch. Additionally, our Chief Credit Officer, Susan Springfield, will be available with Bryan and BJ for questions.

I'll now turn it over to Bryan.

D. Bryan Jordan

Thank you, Aarti. Good morning, and thanks for joining our call.

2012 marked another year of progress for First Horizon as we continued to successfully execute on our strategic priorities. We grew regional bank loans and deposits, improving our balance sheet and business mix. We reduced expenses, achieving near-term productivity and efficiency goals. And we made significant progress in winding down the nonstrategic segment, reducing its future earnings drag.

We also stepped up our return of capital to shareholders, repurchasing $131 million of common stock in 2012 versus $44 million in 2011.

I'm pleased with our accomplishments in 2012. Year-over-year, the regional bank's pre-provision net revenue rose about 7%, driven by a 6% increase in net interest income. Our bankers' focus on service resulted in positive balance sheet trend as we deepened customer relationships. Year-over-year, average core deposits were up 11% in the regional bank. The bank increased average loans 10% from 2011 driven by 12% growth in the C&I portfolio.

The regional bank's net interest spread remained relatively stable at 353 basis points in the fourth quarter of 2012, down 3 basis points from the fourth quarter of 2011. Loan growth in the bank offset a 17% decline in the nonstrategic portfolio, resulting in the year-over-year increase of 2% in consolidated period-end loans.

Our other core business, capital markets, also achieved solid performance, continuing to provide a strong source of fee income, producing a higher rate, a high return on capital and a full year 2012 ROA of 2.5%. Full year revenues declined slightly due to lower fixed income activity. Over the past year, we've continued to selectively add to our sales and trading team and to expand our product offerings and are well positioned at FTN Financial.

Turning to consolidated expenses. We focused on improving productivity and efficiency throughout the year. We focused on all aspects of our call space. The regional bank's revenue per FTE increased 9% from 2011's level. We implemented $137 million of our $139 million targeted consolidated efficiency initiatives. We also met our goal of reducing our annual run rate of consolidated expenses to $1 billion by the end of 2012. Fourth quarter expenses were $253 million, excluding approximately $19 million of restructuring charges.

We're putting the legacy issues behind us. As you recall in the second quarter, we took a $250 million charge to cover projected losses for GSE-related repurchase requests. We had no repurchase provision in either the third or the fourth quarter. As BJ will discuss in a couple of minutes, mortgage repurchase trends were positive at year end.

Asset quality trends continued to improve year-over-year as well. Year-over-year nonperforming assets decreased 20%, and net charge-offs declined 43%. Our allowance to loans was at 166 basis points at year end, down 68 basis points from the fourth quarter of 2011, reflecting overall improvement in our loan portfolios.

We are well positioned with our core businesses. We have a strong market share in our regional banking franchise, First Tennessee, and our capital markets business, FTN Financial. The strength of these businesses and the steps that we have taken over the past few years have positioned us well for further improvement in our returns for shareholders.

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