First Horizon National's CEO Discusses Q1 2012 Results - Earnings Call Transcript

First Horizon National (FHN)

Q1 2012 Earnings Call

April 19, 2012 9:00 am ET

Executives

Aarti Bowman -

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

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

Analysts

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Emlen B. Harmon - Jefferies & Company, Inc., Research Division

Kevin Barker - FBR Capital Markets & Co., Research Division

Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Russell Gunther - BofA Merrill Lynch, Research Division

Christopher W. Marinac - FIG Partners, LLC, Research Division

David J. Bishop - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Horizon National Corporation First Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will turn the conference over to your host, Aarti Bowman of Investor Relations. Please begin.

Aarti Bowman

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 in the Investor Relations section of our website at www.fhnc.com.

In this call, we will mention forward-looking and non-GAAP information. Actual results may differ from the forward-looking information for a number of reasons outlined in our earnings announcement, materials and our most recent annual and quarterly report. 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 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. I'll now turn it over to Bryan.

Bryan Jordan

Thanks, Aarti. Good morning, and thank you for joining our call. We're off to a solid start in 2012. First quarter results on the surface look a bit mixed, but our core businesses performed well. The pretax pre-provision income increased 21%, and pretax income was up 12% year-over-year. Our asset quality continued to improve. In the first quarter, we bought back $44 million of our common stock, leaving $11 million under our initial $100 million share buyback program.

Earlier this week, our board approved an increase of $100 million to our share repurchase program. I'm pleased with the strength in our core business. Regional bank's net interest income was up 9% from a year ago driven by higher loan volume.

Capital markets' revenues increased 18% year-over-year, benefiting from strong fixed income activity from both depository and non-depository clients. Our capital markets segment continues to be a significant contributor to the income with a higher return on capital.

Our ongoing efforts to optimize our business mix paid off. We grew our regional bank loan portfolio, while the non-strategic loans continue to roll off. The banks increased period-end loans by about $1 billion or 10% year-over-year, driven by lending in C&I, commercial real estate and corporate borrowers. Our loan pipeline remains solid and slightly up at the end of the first quarter.

Loan pricing was relatively stable despite aggressive competition in our markets. Our bankers' disciplined pricing allowed us to hold the consolidated average loan yield relatively flat at 408 basis points.

In the non-strategic portfolio, loans declined $1 billion from first quarter 2011 and were $189 million below the year-end level.

We also continue to improve our funding mix. Average core deposits in the regional bank increased 12% from last year and were up 4% from fourth quarter. The decline in our net interest margin was largely due to excess cash balances. BJ will go into more detail of the margin in a few minutes.

Turning to expenses. First quarter's consolidated expenses were up 3% year-over-year due to capital markets' increase in variable compensation, as well as higher personnel and mortgage repurchase costs. Our productivity and efficiency efforts remain on track. We've implemented $116 million of annual savings out of our targeted $139 million. While total revenues in the bank increased 3% compared to the first quarter of 2011, annualized revenue per FTE improved 13% to $261,000 from a year ago.

We're continuing to invest in systems and technology. We want to make it easy for customers to do business with us by simplifying our processes and offering innovative solutions. And we're also driving long-term efficiency. With consolidated expenses, we are firmly committed to reducing annualized level to about $1 billion by year-end 2013. We feel good about our expense control efforts.

Moving onto asset quality trends, which remain favorable. Year-over-year, net charge-offs dropped 40% while nonperforming assets were down 36%. Reserves continue to decline, ending the quarter at 2.17% of loans outstanding. We're seeing stable to improving trends across all of our loan portfolios. To sum up, we're seeing signs of improvement in the economy, but we expect the recovery to be slow, interest rates to stay low and regulatory challenges to persist. In this environment, we will keep controlling what we can control. Our bankers are focused on making profitable loans to optimize returns, earning more business from existing customers and taking market share by providing excellent and convenient service. We're working hard to lower our expenses to become more productive, and we're returning capital to our shareholders with buybacks.

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