First Horizon National Corporation (FHN)

FHN 
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First Horizon National Corporation (FHN)

Q3 2010 Earnings Call Transcript October 15, 2010 9:00 a.m. ET

Executives

Aarti Bowman – Investor Relations

Bryan Jordan – CEO

BJ Losch – CFO

Greg Jardine – Chief Credit Officer

Analysts

Craig Siegenthaler – Credit Suisse

Steven Alexopoulos – J.P. Morgan

Matt O'Connor - Deutsche Bank

Bob Patten – Morgan Keegan

Jon Arfstrom - RBC Capital

Jefferson Harralson - Keefe, Bruyette & Woods

Ken Zerbe – Morgan Stanley

Kevin Fitzsimmons – Sandler O'Neill

Jason Goldberg - Barclays Capital

Kevin Reynolds - Wunderlich Securities

Marty Mosby - Guggenheim

Heather Wolf - UBS

Matt Burnell - Wells Fargo

Mac Hodgson – SunTrust Robinson Humphrey

Presentation

Operator

Good day, ladies and gentlemen and welcome to the First Horizon National Corporation third-quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions.] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Aarti Bowman.

Aarti Bowman

Thank you, operator. Please note that our press release and financial supplement as well as the slide presentation we'll 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 a footnote or 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, BJ Losch; and our Chief Credit Officer, Greg Jardine. With that, I will turn it over to Bryan.

Bryan Jordan

Thank you, Aarti. Good morning and thank you for joining the call. We view third-quarter results as another step forward in executing our strategic plan. Net income available to common shareholders was $16 million, a $13 million improvement over the second quarter. Actions taken to refocus on our core businesses, restructure our balance sheet, and proactively deal with problem credits are paying off.

Third quarter's improved results reflect lower credit-related costs as well as better performance from our core businesses in regional banking and capital markets. Our core businesses give us a competitive advantage in our markets.

The regional bank's pre-tax income rose 63% linked quarter to $48 million, driven by a lower provision, improved net interest income, and relatively stable [unintelligible]. Capital markets pre-tax income grew $15 million second to third quarter, or 56%, due to stronger revenue driven by depository customers' increased activity.

We saw positive results from our focus on growing our middle-Tennessee market share. According to the recent FDIC deposit market share survey, our deposit in Nashville increased 16% year-over-year, twice the rate of overall market growth.

Low loan demand, coupled with runoff in our non-strategic portfolio, resulted in a small decline in period-end loans. We're encouraged by the third quarter's solid pipeline of corporate, asset-based, and commercial real estate loans. There is some C&I pricing competition, but in general we're seeing better pricing in our loan portfolio as yields were up 6 basis points from last quarter and up 28 basis points year-over-year.

Third quarter's bottom line was also helped by a $20 million linked quarter reduction in our credit provision. Continued reductions in higher-risk loan portfolios, along with generally stable credit quality, enabled us to reduce provisioning for the sixth consecutive quarter. Even so, our loan loss reserve is at 4.22%.

Net charge-offs declined for the fifth consecutive quarter. Non-performing assets, although down 25% below a year ago, increased 2% second to third quarter due to fewer resolutions and lower paydowns. The total inflow of new NPAs steadied, despite a couple of larger commercial credits going on non-accrual. Greg will give you more details later in the call.

It is important to keep in mind that with the winding down of our non-strategic loans, we may experience a little more quarterly fluctuation in credit quality metrics given the size of our C&I and commercial real estate credits and the cyclicality of commercial portfolios. Overall, we believe that our credit quality trend will be improving.

I'm pleased with our third-quarter progress, but a slow-growth economy, low interest rates, elevated environmental expenses, and implementation of the Dodd-Frank bill are likely to present challenges for the financial services industry and [us].

We believe we're well positioned to meet the challenges ahead as well as take advantage of the opportunities that will ultimately arise.

On the regulatory front, it's too early to know the full impact of reforms on revenue or expenses, but we believe that they will be manageable for us. We will continue to focus on improving our efficiency and productivity to help offset the impact of reform.

Additionally, we will prudently revisit pricing of effective products and services as circumstances warrant.

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