First Horizon National Corp. Q1 2010 Earnings Call Transcript

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First Horizon National Corp. (FHN)

Q1 2010 Earnings Call

April 16, 2010 9:00 am ET

Executives

Bryan Jordan – CEO

B.J. Losch – CFO

Greg Olivier – Chief Credit Officer

Aarti Bowman - IR

Analysts

Paul Miller – FBR Capital Markets

Craig Siegenthaler - Credit Suisse

Ken Zerbe – Morgan Stanley

Steven Alexopoulos - JPMorgan

Brian Foran – Goldman Sachs

Ken Usdin – BofA/Merrill Lynch

Bob Patten – Morgan Keegan

Tony Davis – Stifel Nicolaus

Jefferson Harralson – KBW

Erika Penala – UBS

Kevin Reynolds – Wunderlich Securities

Kevin Fitzsimmons – Sandler O’Neill

Presentation

Operator

Welcome to the First Horizon National Corporation first quarter 2010 earnings conference call. (Operator Instructions) I would like to the conference to your host, Ms. Aarti Bowman.

Aarti Bowman

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 risks 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 may be noted in this conference call. A reconciliation of that non-GAAP information to comparable GAAP information will be provided as needed in the Appendix of the slide presentation available in the Investor Relations area of our website. Listeners are encouraged to review any such reconciliations 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. Losch, and our Chief Credit Officer, Greg Olivier.

With that, I will turn it over to Bryan.

Bryan Jordan

Thank you Aarti, good morning and thank you for joining our call. First quarter results showed continued progress toward returning to sustained profitability. We significantly narrowed our bottom line loss, further de-risked our balance sheet, and made headway in positioning the regional bank to take full advantage of an economic upturn.

First quarter’s net loss of $0.12 per share was a notable improvement compared to fourth quarter’s loss. As you can see on slide three regional banking and capital markets produced solid results although factors such as higher compensation expense and increased foreclosure costs negatively effected linked quarter comparisons.

Our non-strategic business’ impact on results declined because of our proactive approach to credit issues. As non-performing assets and our outlook for credit continued to improve, we were able to reduce provision expense for the fourth consecutive quarter.

Provision expense declined $30 million from last quarter to $105 million as non-performing assets and charge-offs continued to gradually improve. Additionally while still elevated, environmental costs improved linked quarter. Although they can be volatile we’re encouraged that first quarter’s environmental expenses dropped $21 million from fourth quarter’s level.

We remain dedicated to improving First Horizon’s credit quality and reducing related costs to normal levels. This is critical to returning to sustained profitability. Capital markets will continue to be a high return on capital business for us. We are also increasingly focused on building our bank and positioning it so that it has the people, product capabilities, procedures, and infrastructure to profitably grow revenue as the economy picks up.

For example, in recent months we have taken advantage of the opportunity to hire additional experienced lenders in our footprint. These lenders are creating new customer relationships and along with our overall group of talented lenders helping us deepen existing relationships and actively pursue additional credit worthy borrowers.

During the first quarter our bankers made more than 100,000 calls to customers and prospects. While we’ve seen some encouraging signs that customer activity is picking up, overall loan demand remains soft with pay downs, run offs, and credit related actions still more than offsetting new bookings.

But once demand improves and it will as the economy recovers, we’ll be set to prudently grow our loan portfolio and related revenue. Customer retention rates remain industry leading and consolidated average core deposits increased 4.5% from last quarter, suggesting we’re well positioned to fund an eventual upturn in loan demand.

All in all, I feel good about our ability to grow revenue as the economy turns up. B.J. will now take you through the financial results for the quarter and I’ll be back as we take your questions.

B.J. Losch

Thanks Bryan, good morning everybody. On slide five you can as Bryan talked about our net loss narrowing to $28 million with an EPS loss of $0.12. Lower provisions and lower expenses were the main drivers which I’ll discuss a little bit on the next slide.

And as we turn to the next slide a quick reminder for you on slide six as you saw last week we modified our segments to better reflect ongoing focus on our regional banking and capital markets businesses. Key changes again included the addition of the non-strategic segment which combines the former mortgage banking and national specialty lending segments as well as the TRUPs portfolio.

Corresponded banking has been moved from capital markets to regional banking, and third, regional banking now includes first lien mortgage production within the footprint. And just as a reminder the new segment structure is shown in the Appendix if you want to take a look at that.

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