First Horizon National Corporation (FHN)

FHN 
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First Horizon National Corp. (FHN)

Q3 2009 Earnings Call

October 16, 2009 8:30 am ET

Executives

[Ardie Bowman]

Bryan Jordan - Chief Executive Officer

Greg Olivier - Chief Credit Officer

BJ Losche - Chief Financial Officer

Analysts

Steve Alexopoulos - JP Morgan

Matt O’Connor - Deutsche Bank

Ken Zerbe – Morgan Stanley

Brian Foran – Goldman Sachs

Tony Davis - Stifel Nicolaus

Kevin Reynolds - Wunderlich Securities

Kevin Fitzsimmons - Sandler O’Neill

Adam Barkstrom – Sterne Agee

Jefferson Harralson – Keefe, Bruyette & Woods

Paul Miller – FBR Capital Markets

Al Savastano - Fox-Pitt Kelton

Craig Siegenthaler - Credit Suisse

Presentation

Operator

Welcome to today’s First Horizon National Corporation’s third quarter 2009 earnings conference call. At this time it is my pleasure to turn the conference over to [Ardie Bowman]. Please go ahead.

[Ardie Bowman]

Thank you, operator. Good morning. Please note that our press release and financial supplement, as well as the slide presentation we will use this morning, are posted on the Investor Relations section of our website at www.fhnc.com.

Before we begin, we need to inform you that this conference call contains forward-looking statements which may include guidance involving significant risk and uncertainties. A number of factors could cause actual results to differ materially from those in forward-looking information. Those factors are outlined in the recent earnings press release and more details are provided in the most current 10-Q and 10-K.

First Horizon National Corporation disclaims any obligation to update any forward-looking statements that are made from time-to-time to reflect future events or developments. In addition, non-GAAP financial information is noted in this conference call. A reconciliation of that non-GAAP information to comparable GAAP information will be provided as needed as a footnote in the slides and/or the appendix of the presentations available in the Investor Relations section of our website. Listeners are encouraged to review any such reconciliation after this call.

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; our CFO, B.J. Losche and our Chief Credit Officer, Greg Olivier and Dave Miller.

With that, I will turn it over to Bryan.

Bryan Jordan

Thank you [Ardie]. Good morning everyone and thanks for joining our call. Let’s begin on slide three. During the third quarter we continued to successfully execute our strategy to de-risk our balance sheet and restore First Horizon to consistent profitability.

We reported a third quarter loss of $0.24 per share. This quarter’s loss was significantly lower than first and second quarter’s losses and in line with our expectations. Although they are diminishing, environmental costs mostly credit related and a challenging economy are still taking a toll and impacting reported numbers.

Consolidated third quarter pre-tax, pre-provision income rose to $145 million, up $64 million linked quarter as our core businesses showed continued solid performance while there was lesser drag from costs associated with our wind down business. Looking beyond the bottom line we are making good progress in repositioning First Horizon and delivering on strategic commitments as you will note on slide four.

On asset quality our proactive efforts are paying off as third quarter credit quality trends were generally in line with expectations as a release in our national construction portfolio reserves more than offset an increase in C&I and income CRE reserves. This enabled a drop in third quarter’s provision while leaving our allowance for credit losses at a strong 5.1% of loans.

We also saw a drop in overall net loan charge offs in the third quarter and non-performing assets edged down for the second quarter in a row. Given the ongoing uncertainty about the economy we are not ready to declare victory yet but we definitely believe we are making progress.

During the quarter our capital ratios also improved. At quarter end First Horizon’s tangible common equity to tangible asset ratio was a strong 7.9%, up 60 basis points linked quarter. We are taking aggressive actions to further de-risk our balance sheet. We reduced total assets over $2 billion in the third quarter. This included another $500 million reduction in the size of our wind-down national specialty lending portfolio as well as reductions in trade securities and excess Fed balances.

New loan bookings aren’t keeping pace with loan pay down’s and pay off’s which explained the remainder of third quarter’s balance sheet shrinkage. Looking ahead, we expect another $400 million runoff in the national specialty lending portfolio by year end.

Finally, yet perhaps most importantly, both refocusing on our core regional banking and capital markets businesses is paying off. We are particularly pleased with the continued growth in our customer deposit base, with core deposits up 3% second to third quarter and as anticipated our net interest margin increased another nine basis points reflecting an improved funding mix and greater pricing discipline.

As I mentioned earlier, funds were down in the third quarter despite originating almost $400 million in new and renewed loans. We are proactive in the marketplace lending to individuals and businesses but pay down’s and run off are outstripping loan demand in this uncertain economy.

In the capital markets fixed income revenues were again very good this quarter well above normalized levels but not as strong as the past two quarters when we experienced unusually favorable conditions. While our core businesses third quarter performance was in line with expectations there is still considerable work to do to reach our long-term objectives.

I will be back in a couple of minutes with some final comments. Now BJ will take you through the third quarter financial results.

Read the rest of this transcript for free on seekingalpha.com