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First Horizon Posts Solid Second Quarter

Stocks in this article: FHN

MEMPHIS, Tenn., July 19, 2013 (GLOBE NEWSWIRE) -- First Horizon National Corp. (NYSE:FHN) posted another round of steady earnings in the second quarter driven by its First Tennessee regional banking business, efficiency gains and the continued wind-down of the mortgage business the company sold in 2008. First Horizon announced second quarter diluted earnings per common share of $0.17 and net income available to common shareholders of $41 million.

"First Tennessee Bank and FTN Financial are delivering good results for our customers and shareholders," said Bryan Jordan, First Horizon chairman and CEO. "Our people continue to seize opportunities to earn our customers' business with unparalleled service and product options. We remain committed to operating efficiently throughout the company, building a strong foundation so we can take advantage of opportunities as the economy improves."

Financial results

  • First Tennessee, the company's regional banking arm, delivered 2 percent revenue growth from first quarter 2013 due to increased fee income. The bank's average loans and core deposits climbed 5 percent and 2 percent, respectively, on a year-over-year basis.
  • During the quarter First Horizon added $433 million of assets related to an acquisition in East Tennessee from the FDIC. The 12 Mountain National Bank branches in Blount and Sevier Counties expand First Tennessee's presence in Tennessee, where it already has the leading combined market deposit share in the counties where it does business.
  • FTN Financial, the capital markets group, continued to generate strong returns in the second quarter, with fixed income average daily revenue of $.9 million and annualized return on assets of approximately 1.3 percent.
  • First Horizon's continued focus on efficiency and lower variable compensation from FTN Financial contributed to a 5 percent expense reduction from last quarter.

Credit quality

  • First Horizon's asset quality remains strong, with net charge offs declining by 32 percent from first quarter and 54 percent year over year. The allowance to loans ended the quarter at 162 basis points, down 36 basis points year over year.
  • Non-performing assets increased to $506.7 million in the second quarter from $418.4 million in the first quarter. A significant contributor to the increase was implementation of a regulatory change requiring placement of approximately $56 million of stand-alone second liens on non-accrual upon receipt of third party information about the performance status of non-FHN-serviced first liens.

Capital

  • Ratios remain substantially above well-capitalized levels.  
  • Common shareholders received a dividend of $.05 per share on July 1, up from $.01 a year earlier.
  • First Horizon repurchased $8 million in common shares in the second quarter, bringing the company's buyback total to $213 million since October 2011. First Horizon also entered into a $40 million repurchase arrangement that is expected to be completed in the third quarter. 
           
FHN CONSOLIDATED SUMMARY RESULTS          
Quarterly, Unaudited              
 
            2Q13 Changes vs.
(Dollars in thousands, except per share data) 2Q13 1Q13 4Q12 3Q12 2Q12  1Q13   2Q12 
Income Statement Highlights             
Net interest income  $ 160,019  $ 161,382  $ 170,598  $ 173,465  $ 172,675 (1)% (7)%
Noninterest income   142,983  156,403  151,143  163,538  153,842 (9)% (7)%
Securities gains/(losses), net  (351)  24  (4,700)  --  5,065 NM NM
Total revenue  302,651  317,809  317,041  337,003  331,582 (5)% (9)%
Noninterest expense   227,408  240,540  271,361  263,169  527,177 (5)% (57)%
Provision for loan losses  15,000  15,000  15,000  40,000  15,000 * *
Income/(loss) before income taxes  60,243  62,269  30,680  33,834  (210,595) (3)% NM
Provision/(benefit) for income taxes  15,008  17,730  (12,914)  5,260  (88,178) (15)% NM
Income/(loss) from continuing operations  45,235  44,539  43,594  28,574  (122,417) 2% NM
Income/(loss) from discontinued operations, net of tax  1  430  (12)  108  487 NM NM
Net income/(loss)  45,236  44,969  43,582  28,682  (121,930) 1% NM
Net income attributable to noncontrolling interest   2,843  2,813  2,901  2,875  2,844 1% *
Net income/(loss) attributable to controlling interest  42,393  42,156  40,681  25,807  (124,774) 1% NM
Preferred stock dividends  1,550  1,188  --  --  -- 30% NM
Net income/(loss) available to common shareholders  $ 40,843  $ 40,968  $ 40,681  $ 25,807  $ (124,774) * NM
Common Stock Data            
Diluted EPS from continuing operations  $ 0.17  $ 0.17  $ 0.17  $ 0.10  $ (0.50) * NM
Diluted EPS  $ 0.17  $ 0.17  $ 0.17  $ 0.10  $ (0.50) * NM
Diluted shares (thousands)  240,891  242,799  246,132  248,306  249,104 (1)% (3)%
Period-end shares outstanding (thousands)  240,555  241,225  243,598  247,134  248,810 * (3)%
Cash dividends declared per share  $ 0.05  $ 0.05  $ 0.01  $ 0.01  $ 0.01 * NM
Balance Sheet Highlights (Period-End)          
Total loans, net of unearned income (Restricted - $.1 billion) (a)  $ 16,197,046  $ 15,889,670  $ 16,708,582  $ 16,523,783  $ 16,185,763 2% *
Total deposits  17,011,884  16,204,467  16,629,709  16,228,111  16,117,443 5% 6%
Total assets (Restricted - $.1 billion) (a)   25,133,274  25,166,427  25,520,140  25,739,830  25,492,955 * (1)%
Total liabilities (Restricted - $.1 billion) (a)  22,586,923  22,566,700  23,010,934  23,207,942  22,978,549 * (2)%
Total equity  2,546,351  2,599,727  2,509,206  2,531,888  2,514,406 (2)% 1%
Asset Quality Highlights            
Allowance for loan losses (Restricted - $3.8 million) (a)  $ 261,934  $ 265,218  $ 276,963  $ 281,744  $ 321,051 (1)% (18)%
Allowance / period-end loans 1.62% 1.67% 1.66% 1.71% 1.98%    
Net charge-offs   $ 18,284  $ 26,745  $ 19,781  $ 79,307  $ 39,965 (32)% (54)%
Net charge-offs (annualized) / average loans  0.46% 0.67% 0.48% 1.92% 1.01%    
Non-performing assets (NPA) (b)  $ 506,732  $ 418,385  $ 419,369  $ 450,391  $ 466,873 21% 9%
NPA % (b) (c) 2.25% 1.81% 1.84% 2.15% 2.32%    
Key Ratios & Other            
Return on average assets (annualized) (d) 0.74% 0.73% 0.69% 0.45% (1.96)%    
Return on average common equity (annualized) (e) 7.46% 7.48% 7.20% 4.59% (21.06)%    
Net interest margin (f) (g) 2.96% 2.95% 3.09% 3.15% 3.16%    
Fee income to total revenue (h) 47.19% 49.22% 46.98% 48.53% 47.12%    
Efficiency ratio (i) 75.05% 75.69% 84.34% 78.09% 161.45%    
Book value per common share (j)  $ 8.96  $ 9.16  $ 9.09  $ 9.05  $ 8.92    
Tangible book value per common share (g) (j)   $ 8.25  $ 8.51  $ 8.44  $ 8.41  $ 8.28    
Adjusted tangible common equity to risk weighted assets (g) (k)  9.61% 9.91% 9.93% 10.03% 9.97%    
Market capitalization (millions)  $ 2,694.2  $ 2,576.3  $ 2,414.1  $ 2,379.9  $ 2,152.2    
Full time equivalent employees  4,296  4,381  4,507  4,585  4,619    
NM - Not meaningful
* Amount is less than one percent.
(a) Restricted balances parenthetically presented are as of June 30, 2013.
(b) 2Q13 increase includes approximately $56 million of second liens placed on nonaccrual based on information received from a third party on the performance status of non-FHN serviced first liens and approximately $23 million in foreclosed real estate associated with the MNB acquisition.
(c) NPAs related to the loan portfolio over period-end loans plus foreclosed real estate and other assets.
(d) Calculated using net income.
(e) Calculated using net income available to common shareholders.
(f) Net interest margin is computed using total net interest income adjusted to a fully taxable equivalent ("FTE") basis.
(g) Refer to the Non-GAAP to GAAP Reconciliation.
(h) Ratio excludes securities gains/(losses).
(i) Noninterest expense divided by total revenue excluding securities gains/(losses).
(j) 2Q13 decrease due to $40 million prepaid share repurchase agreement, shares will be delivered in 3Q13 when completed.
(k) Current quarter is an estimate.

Use of non-GAAP measures

Certain measures are included in this release that are non-GAAP, meaning they are not presented in accordance with generally accepted accounting principles (GAAP) in the U.S. FHN's management believes such measures are relevant to understanding the capital position and results of the company. The non-GAAP items presented in this release are tangible book value per common share, adjusted tangible common equity to risk-weighted assets and net interest margin computed using net interest income adjusted for FTE. These measures are reported to FHN's management and board of directors through various internal reports. Additionally, disclosure of the non-GAAP capital ratios provides a meaningful base for comparability to other financial institutions as demonstrated by their use by the various banking regulators in reviewing the capital adequacy of financial institutions. Non-GAAP measures are not formally defined by GAAP or codified in the federal banking regulations, and other entities may use calculation methods that differ from those used by FHN. The reconciliation of non-GAAP to GAAP measures and presentation of the most comparable GAAP items can be found in this table:

NON-GAAP to GAAP Reconciliation
(Period End, Dollars in Thousands except per share data) (Unaudited) 2Q13 1Q13 4Q12 3Q12 2Q12
Tangible Common Equity (Non-GAAP)          
(A) Total equity (GAAP) $2,546,351 $2,599,727 $2,509,206 $2,531,888 $2,514,406
Less: Noncontrolling interest (a)  295,374  295,257  295,165  295,165  295,165
Less: Preferred stock  95,624  95,624  --   --   -- 
(B) Total common equity  2,155,353  2,208,846  2,214,041  2,236,723  2,219,241
Less: Intangible assets (GAAP) (b)  170,906  156,014  156,942  157,921  158,901
(C) Tangible common equity (Non-GAAP) 1,984,447 2,052,832 2,057,099 2,078,802 2,060,340
Less: Unrealized gains on AFS securities, net of tax 9,439 48,591 55,250 63,923 63,679
(D) Adjusted tangible common equity (Non-GAAP)  $1,975,008 $2,004,241 $2,001,849 $2,014,879 $1,996,661
           
Period-end Shares Outstanding          
(E) Period-end shares outstanding  240,555  241,225  243,598  247,134  248,810
           
Risk Weighted Assets          
(F) Risk weighted assets (c) (d)  $ 20,550,720  $ 20,231,850  $ 20,153,430  $ 20,082,979  $ 20,022,430
           
Ratios          
(D)/(F) Adjusted tangible common equity to risk weighted assets ("TCE/RWA") (Non-GAAP) (c)  9.61% 9.91% 9.93% 10.03% 9.97%
(C)/(E) Tangible book value per common share (Non-GAAP)  $8.25 $8.51 $8.44 $8.41 $8.28
           
Net interest income adjusted for impact of fully taxable equivalent ("FTE") (Non-GAAP)          
Net interest income (GAAP) $160,019 $161,382 $170,598 $173,465 $172,675
FTE adjustment  1,913  1,787  1,842  1,752  1,756
Net interest income adjusted for impact of FTE (Non-GAAP) $161,932 $163,169 $172,440 $175,217 $174,431
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Included in Total equity on the Consolidated Balance Sheet.
(b) Includes goodwill and other intangible assets, net of amortization.
(c) Current quarter is an estimate.
(d) Defined by and calculated in conformity with bank regulations.

Conference call

Management will hold a conference call at 8:30 a.m. Central Time today to review earnings and performance trends. There will also be a live webcast accompanied by the slide presentation available in the investor relations section of www.fhnc.com . The call and slide presentation may involve forward-looking information, including guidance.

Participants can call toll-free starting at 8:15 a.m. by dialing 877-303-6618. The number for international participants is 224-357-2205. The conference ID number is 96042715.

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