First Horizon National Corporation (FHN)

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First Horizon National Corporation (FHN)

March 06, 2013 8:20 am ET


Susan Springfield - Chief Credit Officer, Executive Vice President, Chief Credit Officer of First Tennessee Bank National Association and Executive Vice President of First Tennessee Bank National Association


Unknown Executive

Thank you. Thanks for having us. Good morning, everyone, here in the room and on the phone. We appreciate your interest in our company. I'd also ask you to note on our slides the disclaimers on Slide 2 about non-GAAP information, forward-looking statements and the like.

Starting on Slide 3. While the industry and the earnings sources from the industry have changed significantly and continue to evolve in today's environment, we believe that our firm is well-positioned for long-term earnings power. We're focused on driving higher returns on equity and assets. We're very focused on controlling what we can control in this environment, things like expenses, balance sheet, pricing, credit discipline, capital flexibility, customer focus. We have dominant market share in our core businesses of regional banking and capital markets. We have a steady fee income mix. Almost 50% of our total revenue comes from fee income. We've already delivered on a significant amount of expense reduction across our organization, and we expect further improvement in the coming year and years related to things like reduction and pension cost and targeted efficiencies going forward. We have latent earnings in our asset-sensitive balance sheet with significant upside once rates do rise, and we believe we continue to possess capital flexibility. We've been returning capital to shareholders via dividends and buybacks, while maintaining strong capital levels, and we have the capability and resources overtime to participate in the coming consolidation of the industry. So we are very pleased with our progress and we continue to look forward to positive momentum over the long-term.

If you look at Slide 4. It really shows our 2013 strategic priorities. Internally, as a company, we call these our blue chips. We communicate these frequently throughout the organization. Three things: profitability and return focus through our model called the bonefish, which those of you who have followed us would know that we talk about quite a bit. Second is easy-to-do-business-with, and third is providing differentiated customer service. We want everyone in our firm from the front line to the back office to senior management, thinking about doing business every day through this lens, and we believe that in 2013, these are the key controllable levers that we have to significantly improve our performance.

Turning to Slide 5. We pay a significant amount of attention to pure comparisons, externally, benchmarks, internally and externally, which along with our bonefish model, helps us drive continuous improvement and focus on the key drivers of returns and profitability. If you look at our core business performance of regional banking capital markets in our corporate segment, our returns on equity and returns on assets compare very favorably to peers today. We're not done improving, but we feel pretty good about our positioning today. And if you look at the key drivers of those return metrics on charge-offs and credit quality, we are very pleased with our progress here, and we continue to see good credit quality going forward. Our fee income mix, we believe, again, is a significant differentiator for us overtime, to efficiently drive returns on assets, in particular. And the 2 areas that we continue to focus on to improve our bonefish-type performance are the efficiency ratio, which is both, as you know, a numerator and a denominator issue, we've taken significant action on the numerator on the expense side and expect more reduction this year. And the denominator will be helped overtime by continued pricing discipline, defending our margins, improving our fee income streams and eventually, improvement in the rate environment.

We expect that the efficiency ratio today -- I'm sorry, throughout -- by the end of 2013, will be more in the 70% to 75% range, trending much closer towards our long-term bonefish targets as a company of 60% to 65%. And the fourth key driver, our net interest margin is, as you know, across the industry currently under pressure, but we believe that we are doing a lot of things to defend that better. And we will continue to do so in addition to having long-term significant earnings power coming out of our balance sheet overtime as rates do rise.

Slide 6. Looking at our first core business, regional banking, which does business as First Tennessee, we start from a position of strength in our banking business. We have #1 combined market share in the Tennessee markets in where we operate, and we're growing faster than the market across many of our markets. In Middle Tennessee, in particular, where we don't have #1 market share from '11 to '12 according to the FDIC, we grew at 6x the market rate in terms of deposit gathering so we're very pleased with what we're doing here. In a difficult environment, it's very important to take care of your customers. External results and internal benchmarking would show that we're doing a great job there both on the retail side through retention and recommendation from our customers, as well as external on the commercial side with some excellence awards that we're receiving.

We have strong well-established specialty businesses such as mortgage, loans to mortgage companies, asset-based lending, regional corporate banking that have compelling value propositions, high-risk-adjusted returns and continued opportunity for growth. We will continue to focus on those to be able to work smarter, and put our capital to work in a more efficient way. You'll see on the bottom right that our regional banking loans and deposits grew double-digits last year, which we're very proud of, while also maintaining good pricing and credit structure discipline, particularly on the loan side. And on the bottom right, you'll see that our fundings were strong and our pipelines remain solid in this environment. So our bankers are out calling, they're looking for deals. We're open for business and we're pleased with the type of quality lending that we're continuing to see through our pipeline.

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