First Horizon National (FHN)
Q2 2011 Earnings Call
July 15, 2011 9:30 am ET
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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 -
Todd Hagerman - Sterne Agee & Leach Inc.
Jon Arfstrom - RBC Capital Markets, LLC
Craig Siegenthaler - Crédit Suisse AG
L. Erika Penala
Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P.
Brian Foran - Nomura Securities Co. Ltd.
Paul Miller - FBR Capital Markets & Co.
Jefferson Harralson - Keefe, Bruyette, & Woods, Inc.
John Pancari - Evercore Partners Inc.
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.
Good day, ladies and gentlemen, and welcome to the First Horizon National Corporation Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host for today, Ms. Aarti Bowman of Investor Relations. Ma'am, please go ahead.
Thank you, operator. Please note that the press release and financial supplement which announced our earnings, as well as the slide presentation we'll use 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 in 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 questions.
With that, I'll turn it over to Bryan.
Thank you, Aarti. Good morning, and thank you for joining the call. During the second quarter, we continue to successfully execute on our strategic priorities. We made headway in optimizing our business mix for profitability and returns, as the regional bank's pretax income increased 13% linked quarter, and the non-strategic segments drag decreased. We improved productivity and efficiency with overall expenses down 2% linked quarter and 8% year-over-year. Net income rose 6% to $43 million.
We are controlling what we can control in our company and making progress on our strategic priorities. Our bankers are focusing on profitably increasing market share with superior customer service. We have made more than 14,000 customer calls year-to-date, resulting in 3% period-end loan growth in the regional banking.
In our C&I portfolio, growth was encouraging as period-end loans were up 5%. The increase was driven by loans to mortgage companies and our corporate borrowers. Commercial loans, excluding loans to mortgage companies, were up 1%. We are positioning our balance sheet for higher returns by replacing low yielding non-strategic loans with better-priced, more profitable relationship-oriented loans. Our success in expanding and deepening customer relationships benefited revenues in the bank, as net interest income was up 1% and fees increased 2% from last quarter.
Capital markets continues to be a strong contributor to our overall fee income. Capital markets' average daily revenue was $1.1 million, down from last quarter's $1.3 million, but within our normalized range of expected revenues.
We made additional progress towards achieving our productivity and efficiency targets, having identified $110 million in annual cost savings. This $110 million of annualized savings is in our expense based run rate, and we have identified for execution another $60 million to be mostly completed by the end of 2011. BJ will provide more detail in a few minutes, but we took actions to streamline our company as we reorganized our structure, simplified our lines of business and made investments in technology. These actions should result in our becoming more flexible and nimble to serve our customers better.
Our strategic expenses declined 15% linked quarter due to a 34% reduction in mortgage repurchase provision expense. Our goal is to achieve a full year 2013 consolidated expense base that is 20% to 25% less than full year 2010 consolidated expenses of $1.3 billion. Achieving our goal should enable us to reach a 60% to 65% efficiency ratio sometime in 2013. Our efficiency goal also assumes ongoing investments in people, products and technology. From 2009 to the end of this year, we will invest in more than $100 million in system upgrades and technology.
Credit quality trends also improved as nonperformers and net charge-offs declined. Provision expense was unchanged at $1 million in the second quarter. We're seeing continued stabilization in our commercial loan portfolio. Additionally, enhanced collection efforts have helped lower delinquencies in our consumer portfolio.
All in all, I'm pleased with the progress we've made in successfully executing on our strategic priorities. BJ will now take you through the second quarter's financial results, and I'll be back with some closing comments before we take your questions. BJ?