First Horizon National Corporation (FHN)

FHN 
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First Horizon National (FHN)

Q1 2011 Earnings Call

April 21, 2011 9:30 am ET

Executives

Bryan Jordan - Chief Executive Officer, President, Director, Member of Executive & Risk Committee, Chief Executive Officer of First Tennessee Bank, President of First Tennessee Bank and Director of First Tennessee Bank

Greg Jardine - Chief Credit Officer

Greg Olivier - Chief Compliance Officer

William Losch - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Bank and Executive Vice President of Bank

Gregory Jardine - Chief Credit Officer and Chief Credit Officer of the Bank

Aarti Bowman -

Analysts

Jessica Ribner - FBR Capital Markets & Co.

Anthony Davis - Stifel, Nicolaus & Co., Inc.

John Pancari - Evercore Partners Inc.

Christopher Marinac - FIG Partners, LLC

Marty Mosby - Guggenheim Securities, LLC

Robert Patten - Morgan Keegan & Company, Inc.

Mac Hodgson - SunTrust Robinson Humphrey, Inc.

Steven Alexopoulos - JP Morgan Chase & Co

Kevin Reynolds - Wunderlich Securities Inc.

Ken Zerbe

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the First Horizon National Corp. First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to host, Aarti Bowman. You may begin.

Aarti Bowman

Thank you, operator. Please note that the press release and financial supplement with announced earnings, as well as the slide presentation we used 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 statements and non-GAAP information. Actual results may differ from the forward-looking information for a number of reasons outlined in our earnings announcements materials and 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 materials 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, Greg Jardine, will be available with Bryan and BJ for your questions.

With that, I'll turn it over to Bryan.

Bryan Jordan

Thank you, Aarti. Good morning, everyone, and thank you for joining the call. I'm pleased with the progress we've made. Our core business has showed solid performance. We made good headway in our efficiency initiatives, credit quality improved notably and we maintained our strong capital position. In other words, we're executing on our key priorities for 2011, and are getting back to blocking and tackling.

As first quarter results show, we are gradually optimizing our business mix, taking steps to build our higher-return Regional Banking and Capital Markets businesses, while continuing to wind down the lower margin in non-Strategic segment. The Regional Bank's pretax income rose 4% linked quarter and moved from a pretax loss to a pretax profit year-over-year. Capital markets' performance remains solid. The non-Strategic segment continued to be less of a drag on our overall results.

Our proactive steps to identify and provide for problem credits are paying off, as we were able to sharply reduce the loan loss provision as credit trends improved. In fact, the Regional Bank booked a provision credit in the first quarter. At quarter's end, we maintained a reserve of 3.7% of total loans.

Revenue trends in the Regional Bank were also encouraging despite ongoing environmental challenges. Linked-quarter revenues declined from unfavorable seasonal impacts from lower NSF fees, a shorter day count and a lower level of earning assets. Our bankers' intensified calling efforts, along with emphasis on customer service, are helping us deepen and expand profitable customer relationships.

The Regional Bank's loan activity has been good. As a result, we're seeing a positive shift in the loan mix, with attractively priced growth in our corporate asset-based lending and CRE portfolios. Total loans though were down linked quarter due to a decrease in loans to mortgage companies as mortgage refis slowed from the rise in interest rates.

Pricing on new loans remained favorable as spreads were up 9 basis points linked quarter and at 29 basis points above a year ago. We will continue to improve our bank's balance sheet composition as we focus on a diversified, appropriately-priced Loan portfolio.

Even though the current environment is competitive, we plan to stay disciplined with our loan pricing structure while continuing to build market share. We're focused on winning good, relationship-oriented customers, which should help us generate better revenues and fee income.

Our Capital Markets business continues to be a strong contributor to fee income. As expected, average daily revenues were in the range of our normalized levels at $1.3 million in the first quarter. Capital Markets' return on asset was approximately 3%, and we expect it to remain a high-return business for us. Losses on our non-Strategic segment narrowed, reflecting lower credit costs and a decline in mortgage repurchase expense.

We signed agreements to sell our First Horizon Insurance and Highland Capital businesses in the first quarter, reflecting our continued emphasis on improving profitability and returns.

We also made progress in improving productivity and efficiency, with consolidated expenses dropping year-over-year and linked quarter. There is clearly more work to be done, but we're well on our way toward implementing initiatives that should save us more than $100 million annually by 2012.

Approximately 40% to 50% of the targeted savings are currently in our run rate, as BJ will discuss in more detail. We are committed to rightsizing our expense base with the same vigor that we addressed our capital position and our proactive stands on credit quality.

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