First Horizon National Corporation Reports Financial Results for First Quarter 2006
MEMPHIS, Tenn., April. 19, 2006 (PRIMEZONE) -- First Horizon National Corporation (NYSE:FHN) announced first quarter 2006 earnings of $215.0 million or $1.67 per diluted share. In 2005, first quarter earnings were $105.8 million or $.83 per diluted share. FHN's performance in first quarter 2006 was impacted by transactions through which the incremental capital provided by the merchant divestiture was utilized, various other transactions and accounting issues.
The two most important of these transactions were a gain realized on the consummation of the previously announced sale of FHN's national merchant processing business and securities losses incurred in connection with a restructuring of the investment portfolio undertaken in view of the current interest rate environment.
Business operations reflected continued strong growth within Retail/Commercial Banking, growth in Capital Markets revenues, and a decline in Mortgage Banking related to a tightening in the overall mortgage market. Retail/Commercial Banking experienced 24 percent growth in loans and an 11 percent increase in deposits. While Capital Markets revenues were only up 2 percent as compared to the first quarter of 2005, these revenues experienced an 18 percent increase on a sequential quarter basis. Since the first quarter of 2005, Mortgage Banking originations have fallen 10 percent; however, the expected decline for the industry is 17 percent. Mortgage Banking earnings were also unfavorably impacted by hedge performance this quarter.
"Although numerous factors may make it difficult to understand our underlying performance this quarter, we are convinced that the actions we are taking will position us well for the future," said Ken Glass, Chairman and CEO of FHN, "We believe it is essential to be proactive in responding to changing market conditions and circumstances. That's why we are selling the merchant business and using the proceeds from that sale to implement various transactions including buying back our shares and restructuring our balance sheet, which create immediate value for our shareholders."
Comparisons between reported earnings are directly and significantly affected by a number of factors that were present in first quarter 2006 but not present (or present to a much lesser degree) in first quarter 2005. The following discussion highlights these items:
The results for first quarter 2006 included earnings from discontinued operations of $210.3 million or $1.63 per diluted share related to the sale of the merchant processing business. In first quarter 2005 earnings from discontinued merchant operations were $3.0 million or $.03 per diluted share. On March 1, 2006, FHN sold its national merchant processing business for an after-tax gain of $208 million. This divestiture was accounted for as a discontinued operation, and accordingly, current and prior periods were adjusted to exclude the impact of merchant operations from the results of continuing operations.
In first quarter 2006, FHN purchased 4 million shares of its common stock through an accelerated share repurchase program for an initial purchase price of approximately $158 million. The final settlement, after the repurchase period, is expected to occur in second quarter 2006. The benefit of this share repurchase, which occurred near the end of the quarter, was not fully realized in first quarter as average shares decreased by approximately 1 million, but it will have an additional positive impact on per share earnings in future periods.
FHN incurred $80.3 million of securities losses included in continuing operations in first quarter 2006, predominantly related to repositioning approximately $2.3 billion of investment securities. Additionally, there were $.3 million of incremental costs related to the execution of the restructuring. The benefit of this restructuring, which occurred near the end of the quarter, was not fully realized in first quarter but will increase the average yield on the investment portfolio by approximately 120 basis points in future periods.
FHN has determined that certain derivative transactions used in hedging strategies to manage interest rate risk did not qualify for hedge accounting under the "short cut" method, as have a number of other banks. As a result, any fluctuations in the market value of the derivatives should have been recorded through the income statement with no corresponding offset to the hedged item. While management believes these hedges would have qualified for hedge accounting under the "long haul" method, that accounting cannot be applied retroactively. FHN evaluated the impact to all quarterly and annual periods since the inception of the hedges and concluded that the impact was immaterial in each period. In first quarter 2006, FHN recorded an adjustment to recognize the cumulative impact of these transactions that resulted in a negative $15.6 million impact to noninterest income, which was included in continuing operations. FHN has subsequently redesignated these hedge relationships under SFAS No . 133 using the "long haul" method.
Other items included in continuing operations for first quarter 2006:
- A pre-tax loss of $12.7 million was recognized from the sale of
home equity lines of credit (HELOC) upon which the borrower had not
drawn funds ("no-balance"). The loss represents deferred loan
origination costs, generally recognized over the life of the loan,
which were recognized when the line of credit was sold. This
transaction reduces amortization of deferred loan origination costs
over the next three to four years.
- Mortgage banking experienced foreclosure losses and other expenses
of $13.2 million compared to historical levels of approximately $2
million to $3 million related to nonprime mortgage loans. Going
forward, profitability of the nonprime origination business is
expected to return to normal levels as management has implemented
improved procedures to address more stringent investor requirements
and to ensure a more disciplined approach to managing the risk of
this held for sale portfolio of loans.
- FHN underwent a change in the dynamics of its business
relationship with the U.S. Mint, through which collectible coins
are distributed, and recognized expenses of $9.3 million this
quarter, representing the devaluation of packaging inventories and
costs of closing retail locations.
- Continually looking for ways to better align the cost structure,
FHN incurred expenses of $5.2 million related to consolidating
operations and office closings.
- Compensation expense of $4.5 million related to early retirement,
severance and retention was recognized in the current quarter but
will reduce costs and should improve performance going forward.
- FHN continues to implement enterprise-wide synergies which
resulted in $1.2 million of incremental expenditures on technology
designed to enhance efficiencies and increase productivity.
First quarter 2006 earnings also included a favorable impact of $1.3 million or $.01 per diluted share from the cumulative effect of changes in accounting principles. FHN adopted SFAS No. 123-R, "Share-Based Payment" in first quarter 2006 and retroactively applied the provisions of the standard. Accordingly, results for periods prior to 2006 have been adjusted to reflect expensing of share-based compensation. A cumulative effect adjustment of $1.0 million was recognized, reflecting the change in accounting for share-based compensation expense based on estimated forfeitures rather than actual forfeitures. FHN also adopted SFAS No. 156, "Accounting for Servicing of Financial Assets," which allows servicing assets to be measured at fair value with changes in fair value reported in current earnings. The adoption of this standard was applied on a prospective basis and resulted in a cumulative effect adjustment of $.3 million, representing the excess of the fair value of the servicing asse t over the recorded value on January 1, 2006.
Summary of impact to results of continuing operations from items discussed above:
Impact on 1Q06
Pre-tax Income
from Continuing
(In millions of dollars) Operations Segment
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Investment portfolio
restructuring and other
securities losses $ 81 Corporate
Sale of no-balance HELOC 13 R/C Banking
Incremental nonprime losses 11 Mtg Banking
Coin inventory valuation
and closing retail sites 9 R/C Banking
---------------------
Consolidation of operations 5 R/C Banking - 73%
and closing of offices Mtg Banking - 27%
---------------------
Early retirement, severance 5 R/C Banking - 62%
and retention costs Capital Markets - 22%
Mtg Banking - 16%
---------------------
Incremental technology costs 1 All segments
Hedge accounting treatment 16 Corporate
Stock-based compensation cost 3 All segments
Negative impact of merchant sale 3 R/C Banking
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Return on average shareholders' equity and return on average assets were 37.3 percent and 2.31 percent, respectively, for first quarter 2006. Return on average shareholders' equity and return on average assets were 20.8 percent and 1.26 percent, respectively, for first quarter 2005. Total assets were $37.3 billion and shareholders' equity was $2.4 billion on March 31, 2006, compared to $35.2 billion and $2.1 billion, respectively, on March 31, 2005.
PERFORMANCE HIGHLIGHTS
Retail/Commercial Banking
Total revenues for Retail/Commercial Banking increased 11 percent to $331.4 million for first quarter 2006 compared to $299.5 million for first quarter 2005.
Net interest income increased 13 percent to $224.9 million in first quarter 2006 from $198.6 million in first quarter 2005 as earning assets grew 17 percent, or $3.1 billion. Loans grew 24 percent or $4.0 billion while loans held for sale decreased 53 percent or $.9 billion and deposits increased 11 percent or $1.1 billion over first quarter 2005. The Retail/Commercial Banking net interest margin was 4.25 percent in first quarter 2006 compared to 4.22 percent in fourth quarter 2005 and 4.38 percent in the first quarter of last year.
Noninterest income increased 6 percent to $106.5 million in first quarter 2006 from $100.9 million in first quarter 2005. Fees from deposit transactions and cash management increased 14 percent or $4.7 million compared to first quarter 2005 due to deposit growth and pricing initiatives. Revenue from loan sales and securitizations remained stable in first quarter 2006 due to increased volume of loans sold, while profit margins were unfavorably impacted by a shift in equity lending originations from variable rate HELOC to fixed-rate second-lien mortgages combined with competitive pricing pressures, and a gain from the sale of a portfolio of non-strategic and non-core customer credit card receivables. Also impacting this revenue stream was the $12.7 million loss from the sale of no-balance HELOC.
Provision for loan losses increased to $18.0 million in first quarter 2006 from $13.1 million last year, primarily reflecting loan growth and a gradual trend away from the recently experienced low levels of net charge-offs.
Noninterest expense was $215.6 million in first quarter 2006 compared to $179.6 million last year. The increase in noninterest expense was impacted by costs associated with the coin inventory valuation and closing of retail sites; consolidation of remittance processing operations and office closing; and early retirement costs. In addition, higher personnel costs resulted from national expansion initiatives.
Including the effect of these above items, pre-tax income for Retail/Commercial Banking decreased 8 percent to $97.8 million for first quarter 2006, compared to $106.8 million for first quarter 2005. Including the impact of discontinued merchant operations, which reflected the gain on the sale and the cumulative effect of accounting changes, net income increased to $280.7 million from $75.9 million in 2005.
Mortgage Banking
Total revenues for Mortgage Banking were $120.1 million in first quarter 2006 compared to $155.8 million in first quarter 2005.
Net interest income decreased 24 percent to $25.4 million in first quarter 2006 from $33.2 million in first quarter 2005. The flattening of the yield curve resulted in compression of the spread on the warehouse, which was 1.77 percent in first quarter 2006 compared to 2.89 percent for the same period in 2005.
Noninterest income decreased to $94.7 million in first quarter 2006 compared to $122.6 million in first quarter 2005. Noninterest income consists primarily of mortgage banking-related revenue, net of costs, from the origination and sale of mortgage loans, fees from mortgage servicing and mortgage servicing rights (MSR) net hedge gains or losses. Mortgage servicing noninterest income prior to the adoption of SFAS No. 156 in first quarter 2006 was net of amortization, impairment and other expenses related to MSR and related hedges. Subsequent to the adoption of SFAS No. 156, mortgage servicing noninterest income reflects the change in fair value of the MSR asset combined with net hedging results, whether positive or negative.
Mortgage loan originations decreased to $6.9 billion in first quarter 2006 from $7.6 billion in 2005 as refinance activity dropped 22 percent. Home purchase origination volume remained stable and represented 59 percent of total originations during first quarter 2006 compared to 53 percent last year. The aggregate decline in origination volume of 10 percent was significantly better than the national market's decline of 17 percent. Loans delivered into the secondary market decreased 8 percent to $6.8 billion as originations slowed. Net revenue from mortgage loans sold decreased 28 percent to $72.3 million from $100.0 million in first quarter 2005.
The mortgage-servicing portfolio grew 11 percent to $97.3 billion on March 31, 2006, from $88.0 billion on March 31, 2005. Total fees associated with mortgage servicing increased 15 percent to $77.8 million from $67.9 million, reflecting this growth. The growth in the servicing portfolio and rising interest rates led to a 29 percent increase in the value of capitalized mortgage servicing rights from a year ago to $1.3 billion in first quarter 2006. The adoption this quarter of SFAS No. 156 changed the way net servicing revenues are being reported. Changes in the value of the MSR asset due to runoff and other portfolio adjustments reduced servicing revenue by $58.8 million. In addition, the MSR asset gained value due to rising interest rates in the amount of $96.0 million, which was offset by hedge losses on MSR derivatives of $98.3 million. During first quarter 2005, the MSR value loss due to runoff was $59.4 million, MSR change due to interest rates was an increase of $74.8 million, which was partially offset by hedge losses totaling $55.1 million. The cumulative net impact related to MSR value changes and a related change in the value of the hedge portfolio was a decline of $21.4 million. Trading asset performance and option expense further reduced servicing revenue in first quarter 2006 by $6.0 million.
Noninterest expense increased to $125.7 million in first quarter 2006 from $110.0 million in first quarter 2005 due to the unusually high level of losses associated with the nonprime origination business and $2.1 million of costs associated with branch closings, including lease abandonment and severance expenses.
Including the impact of the above items, Mortgage Banking had a pre-tax loss of $5.4 million for first quarter 2006, compared to pre-tax income of $45.8 million for first quarter 2005.
Capital Markets
Total revenues for Capital Markets were $93.3 million in first quarter 2006 compared to $91.2 million in first quarter 2005.
Revenues from fixed income sales were $50.6 million in first quarter 2006 compared to $63.0 million in first quarter 2005. However, on a sequential-quarter basis fixed income sales have increased 14 percent from fourth quarter 2005. The interest rate environment during 2005 created challenging conditions for fixed income sales as reflected in the lower revenues experienced through the third quarter of last year.
Revenues from other products were $45.9 million in first quarter 2006, an increase of $11.1 million, or 32 percent, from first quarter 2005. Revenues from other products include fee income from activities such as loan sales, investment banking, equity research, portfolio advisory and the sale of bank-owned life insurance. These other sources of revenue represented 48 percent of total product revenues in first quarter 2006 compared to 36 percent in first quarter 2005. The increase from first quarter 2005 was primarily due to increased fees from investment banking and structured finance activities. Other non-product revenues relating to a deferred compensation plan increased $3.9 million from first quarter 2005. This revenue increase was offset by a related $3.9 million increase in noninterest expense associated with this plan.
Noninterest expense increased $4.6 million compared to first quarter 2005 primarily due to the $3.9 million increase in deferred compensation plan expense discussed above. Noninterest expense increased $10.6 million from fourth quarter 2005 primarily due to increased variable compensation expense associated with the increase in product revenues, a cyclical increase in statutory fringe benefits expense, and an increase in deferred compensation plan expense which was substantially offset by a related increase in other non-product revenues.
Including the impact of the above items, Capital Markets pre-tax earnings were $6.9 million in first quarter 2006 compared to $9.4 million in first quarter 2005.
Corporate
The Corporate segment's results yielded a pre-tax loss of $108.9 million in first quarter 2006 compared to a pre-tax loss of $9.3 million in first quarter 2005. The first quarter 2006 results include $80.3 million of net securities losses, primarily related to the restructuring of the investment portfolio which resulted in securities losses of $79.3 million. Noninterest income was negatively impacted by $15.6 million due to the hedge accounting adjustment. Noninterest expense increased in 2006 due to $4.1 million dividend expense on $300 million of the bank's noncumulative perpetual preferred stock.
AVERAGE BALANCE SHEET
Total average assets increased 11 percent to $37.7 billion for first quarter 2006. Total loans increased 25 percent to $20.8 billion as commercial loans grew 26 percent and retail loans increased 24 percent. Loans held for sale decreased 10 percent to $4.8 billion. Average earning assets increased 13 percent to $33.1 billion. Interest-bearing core deposits increased 11 percent. Total core deposits increased 7 percent to $12.3 billion, which reflects targeted financial center expansion. Purchased funds increased 7 percent to $17.4 billion. Average shareholders' equity increased 13 percent in first quarter 2006.
The consolidated net interest margin was 2.99 percent for first quarter 2006 compared to 3.12 percent for first quarter 2005. This compression in the margin occurred as the net interest spread decreased to 2.44 percent in 2006 from 2.80 percent in 2005 while the impact of free funding increased from 32 basis points to 55 basis points. The decline in margin is attributable to a flatter yield curve which decreased spread on the warehouse by 112 basis points to 1.77 percent, creating a negative impact of 12 basis points on the overall corporate margin this quarter as compared to a year ago.
ASSET QUALITY
Provision for loan losses increased to $17.8 million in first quarter 2006 from $13.1 million in first quarter 2005, reflecting loan growth and a gradual trend away from the recently experienced low levels of net charge-offs. The ratio of nonperforming assets remained stable at 37 basis points in first quarter 2006 compared to 38 basis points last year. Nonperforming assets were $94.4 million on March 31, 2006, compared to $75.1 million on March 31, 2005. An increase of $6.7 million in nonperforming loans held for sale was due to deterioration in nonprime lending. The net charge-off ratio was flat compared to fourth quarter levels; however, it increased to 22 basis points in first quarter 2006 from 17 basis points in 2005 as net charge-offs grew to $11.3 million from $7.1 million during a period of strong loan growth. (See the table on A-4 for an analysis of the allowance for loan losses and details on nonperforming assets and the table on A-5 for asset quality ratios).
OUTLOOK
"Looking ahead, second quarter's earnings will benefit as the first quarter's unfavorable impact of seasonality goes away. Additionally, earnings throughout the remainder of the year should be positively impacted by the continued execution of our strategies combined with the incremental benefit of earnings enhancements. We will also benefit earnings per share impact from the transactions which utilized the proceeds from the merchant divestiture. Another recent development was the increase in Capital Markets revenues experienced this quarter. On the other hand, a more negative mortgage market or further flattening in the yield curve could create further pressure on earnings." Glass concluded, "Assuming a stable operating environment and the continuation of these operating trends, we still expect that earnings per share for the remainder of this year should grow over prior year."
This press release contains forward-looking statements involving significant risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking information. Those factors include general economic and financial market conditions, including expectations of and actual timing and amount of interest rate movements including the slope of the yield curve, competition, customer and investor responses to these conditions, ability to execute business plans, geopolitical developments, natural disasters, and items already mentioned in this press release, as well as critical accounting estimates and other factors described in FHN's recent filings with the SEC. FHN disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
OTHER INFORMATION
FHN provides additional disclosure and discussion related to FHN's earnings and business segment performance through a financial supplement which is available on FHN's website at www.fhnc.com. Management will also host a conference call at 8:00 a.m. Central Time April 20 to review earnings and performance trends. Callers wishing to participate in the call may dial toll-free starting at 7:45 a.m. Central Time April 20 by dialing 1-800-810-0924 (international participants dial 1-913-981-4900). The conference will also be webcast live through the investor relations section of FHN's website. To access the webcast, visit http://www.shareholder.com/fhnc/medialist.cfm. A replay of the call will be available from 11 a.m. Central Time April 20 until 11 a.m. Sunday, April 30, 2006, by calling 1-888-203-1112 or 1-719-457-0820 for international participants. The passcode is 1432327. The event will be archived and made available by 1 p.m. Central Time April 20 on FHN's website at www.fhnc.com. For four weeks from th e press release date, FHN will respond to individual requests for clarification of the provided disclosures. However, we will make every effort not to provide, and you should not expect to receive, material non-public information as that term is defined in the SEC Regulation FD. Without limiting the foregoing, after the conference call and except for the guidance expressed or implied herein, we will not provide any earnings guidance, directly or indirectly, express or implied.
GENERAL INFORMATION
About First Horizon
The 13,000 employees of First Horizon National Corp. (NYSE: FHN) provide financial services to individuals and business customers through hundreds of offices located in 46 states. The corporation's three major brands -- FTN Financial, First Horizon and First Tennessee - provide customers with a broad range of products and services including:
- Capital Markets, one of the nation's top underwriters of U.S.
government agency securities
- Mortgage Banking, one of the nation's top 20 mortgage originators
and top 15 servicers, which earned a top-10 ranking in customer
satisfaction from J.D. Power and Associates
- Retail/Commercial Banking, with the largest market share in Tennessee
and one of the highest customer retention rates of any bank in the
country
FHN companies have been recognized as some of the nation's best employers by AARP, Working Mother and Fortune magazines. FHN also was named one of the nation's 100 best corporate citizens by Business Ethics magazine. More information can be found at www.fhnc.com.
FIRST HORIZON NATIONAL CORPORATION
STATEMENTS OF INCOME
Yearly Growth
(Unaudited)
Year-to-date
March 31
-------------------
Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Interest income $533,369 $384,876 38.6 +
Less interest expense 287,648 157,429 82.7 +
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Net interest income 245,721 227,447 8.0 +
Provision for loan losses 17,799 13,109 35.8 +
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Net interest income after
provision for loan losses 227,922 214,338 6.3 +
Noninterest income:
Mortgage banking 88,815 118,763 25.2 --
Capital markets 92,858 95,162 2.4 --
Deposit transactions and
cash management 38,023 33,255 14.3 +
Insurance commissions 14,686 14,749 .4 --
Revenue from loan sales
and securitizations 11,357 13,234 14.2 --
Trust services and investment
management 10,657 11,164 4.5 --
Securities losses, net (80,281) (66) NM
Other 29,629 36,617 19.1 --
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Total noninterest income 205,744 322,878 36.3 --
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Adjusted gross income after
provision for loan losses 433,666 537,216 19.3 --
Noninterest expense:
Employee compensation, incentives
and benefits 260,141 240,297 8.3 +
Occupancy 30,102 24,011 25.4 +
Operations services 17,440 16,445 6.1 +
Equipment rentals, depreciation,
and maintenance 20,264 17,485 15.9 +
Communications and courier 14,912 12,468 19.6 +
Amortization of intangible assets 2,888 2,536 13.9 +
Other 97,468 71,295 36.7 +
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Total noninterest expense 443,215 384,537 15.3 +
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Pre-tax (loss)/income (9,549) 152,679 106.3 --
(Benefit)/provision for income taxes (12,959) 49,864 126.0 --
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Income from continuing operations 3,410 102,815 96.7 --
Income from discontinued operations,
net of tax 210,273 3,015 NM
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Income before cumulative effect 213,683 105,830 101.9 +
Cumulative effect of changes in
accounting principle, net of tax 1,345 -- NM
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Net income $215,028 $105,830 103.2 +
===================
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Diluted earnings per share from
continuing operations $ .03 $ .80 96.3 --
Diluted earnings per share before
cumulative effect $ 1.66 $ .83 100.0 +
Diluted earnings per common share $ 1.67 $ .83 101.2 +
Dividends declared $ .45 $ .43
Diluted shares 129,100 128,032
SELECTED FINANCIAL RATIOS:
-------------------------
Return on average assets 2.31% 1.26%
Return on average shareholders' equity 37.3 20.8
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-1
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Yearly Growth
(Unaudited)
Year-to-date
March 31
-------------------------
Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial
and industrial $ 6,415,436 $ 5,480,107 17.1 +
Real estate commercial 1,225,049 1,004,564 21.9 +
Real estate construction 2,197,693 1,305,981 68.3 +
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Total commercial loans 9,838,178 7,790,652 26.3 +
Retail:
Real estate residential 8,629,370 7,385,847 16.8 +
Real estate construction 1,961,658 1,105,392 77.5 +
Other retail 164,567 160,685 2.4 +
Credit card receivables 238,089 238,066 NM
Real estate loans pledged
against other collateralized
borrowings (a) 6,535 -- NM
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Total retail loans 11,000,219 8,889,990 23.7 +
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Total loans, net of
unearned income 20,838,397 16,680,642 24.9 +
Investment securities 3,026,429 2,794,805 8.3 +
Loans held for sale 4,776,373 5,315,114 10.1 --
Other earning assets 4,500,845 4,576,607 1.7 --
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Total earning assets 33,142,044 29,367,168 12.9 +
Cash and due from banks 831,172 729,802 13.9 +
Other assets 3,716,307 3,994,471 7.0 --
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Total assets $37,689,523 $34,091,441 10.6 +
=========================
Certificates of deposit under
$100,000 and other time $ 2,602,581 $ 2,102,399 23.8 +
Other interest-bearing deposits 4,794,639 4,567,853 5.0 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 7,397,220 6,670,252 10.9 +
Demand deposits 1,712,247 1,784,963 4.1 --
Other noninterest-bearing deposits 3,204,212 3,001,739 6.7 +
---------------------------------------------------------------------
Total core deposits 12,313,679 11,456,954 7.5 +
Certificates of deposit $100,000
and more 10,626,088 10,147,069 4.7 +
---------------------------------------------------------------------
Total deposits 22,939,767 21,604,023 6.2 +
Short-term borrowed funds 6,815,291 6,152,695 10.8 +
Term borrowings 3,798,645 2,616,152 45.2 +
Other collateralized
borrowings (a) 6,662 -- NM
---------------------------------------------------------------------
Total long-term debt 3,805,307 2,616,152 45.5 +
Other liabilities 1,498,372 1,620,600 7.5 --
Preferred stock of subsidiary 295,274 29,998 NM
Shareholders' equity 2,335,512 2,067,973 12.9 +
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Total liabilities and
shareholders' equity $37,689,523 $34,091,441 10.6 +
=========================
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) During this quarter we completed an on-balance sheet
securitization, which is structured as a financing for accounting
purposes, rather than as a sale as in the case of off-balance
sheet securitizations.
A-2
FIRST HORIZON NATIONAL CORPORATION
PERIOD-END STATEMENTS OF CONDITION
(Unaudited)
March 31
------------------------- Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 6,538,798 $ 5,781,307 13.1 +
Real estate commercial 1,232,021 1,030,052 19.6 +
Real estate construction 2,277,825 1,427,955 59.5 +
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Total commercial loans 10,048,644 8,239,314 22.0 +
Retail:
Real estate residential 8,486,345 7,358,940 15.3 +
Real estate construction 2,001,916 1,190,155 68.2 +
Other retail 161,617 160,457 .7 +
Credit card receivables 194,908 234,915 17.0 --
Real estate loans pledged
against other collateralized
borrowings (a) 293,561 -- NM
---------------------------------------------------------------------
Total retail loans 11,138,347 8,944,467 24.5 +
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Total loans, net of
unearned income 21,186,991 17,183,781 23.3 +
Investment securities 2,944,826 2,899,916 1.5 +
Loans held for sale 3,604,010 5,277,158 31.7 --
Other earning assets 3,881,511 3,436,321 13.0 +
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Total earning assets 31,617,338 28,797,176 9.8 +
Cash and due from banks 887,539 770,844 15.1 +
Discontinued assets 56,712 126,213 55.1 --
Other assets 4,739,386 5,463,190 13.2 --
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Total assets $37,300,975 $35,157,423 6.1 +
=========================
Certificates of deposit
under $100,000 and
other time $ 2,692,046 $ 2,145,312 25.5 +
Other interest-bearing
deposits 5,122,441 4,637,474 10.5 +
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Total interest-bearing
core deposits 7,814,487 6,782,786 15.2 +
Demand deposits 2,584,223 2,409,030 7.3 +
Other noninterest-bearing
deposits 2,889,794 3,035,455 4.8 --
---------------------------------------------------------------------
Total core deposits 13,288,504 12,227,271 8.7 +
Certificates of deposit
$100,000 and more 8,228,543 10,781,020 23.7 --
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Total deposits 21,517,047 23,008,291 6.5 --
Short-term borrowed funds 5,853,701 4,679,886 25.1 +
Term borrowings 4,299,539 2,591,354 65.9 +
Other collateralized
borrowings (a) 299,800 -- NM
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Total long-term debt 4,599,339 2,591,354 77.5 +
Discontinued liabilities 233,402 77,926 199.5 +
Other liabilities 2,402,604 2,379,308 1.0 +
Preferred stock of subsidiary 295,274 295,858 .2 --
Shareholders' equity 2,399,608 2,124,800 12.9 +
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Total liabilities and
shareholders' equity $37,300,975 $35,157,423 6.1 +
=========================
--------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) During this quarter we completed an on-balance sheet
securitization, which is structured as a financing for accounting
purposes, rather than as a sale as in the case of off-balance
sheet securitizations.
A-3
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
(Thousands) 1Q06 4Q05 3Q05 2Q05 1Q05
---------------------------------------------------------------------
ALLOWANCE FOR
LOAN LOSSES:
Beginning
Reserve $189,705 $185,029 $169,697 $164,195 $158,159
Provision 17,799 16,175 22,608 15,786 13,109
Divestitures/
acquisitions (1,195) (516) 1,902 -- --
Charge-offs (14,791) (14,586) (12,900) (13,642) (11,022)
Recoveries 3,493 3,603 3,722 3,358 3,949
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Ending Balance $195,011 $189,705 $185,029 $169,697 $164,195
-----------------====================================================
Reserve for off-
balance sheet
commitments $ 9,420 $ 10,650 $ 9,034 $ 8,515 $ 8,212
Total of
allowance for
loan losses and
reserve for off-
balance sheet
commitments $204,431 $200,355 $194,063 $178,212 $172,407
---------------------------------------------------------------------
NONPERFORMING
ASSETS:
RETAIL/COMMERCIAL
BANKING:
Nonperforming
loans $ 49,332 $ 40,771 $ 39,236 $ 39,792 $ 40,160
Foreclosed
real estate 19,556 18,932 19,875 18,647 17,958
---------------------------------------------------------------------
Total Retail/
Commercial
Banking 68,888 59,703 59,111 58,439 58,118
---------------------------------------------------------------------
MORTGAGE BANKING:
Nonperforming
loans - held
for sale 16,000 11,488 11,868 10,550 9,264
Foreclosed real
estate 9,538 8,478 7,981 8,490 7,737
---------------------------------------------------------------------
Total Mortgage
Banking 25,538 19,966 19,849 19,040 17,001
---------------------------------------------------------------------
Total non-
performing
assets $ 94,426 $ 79,669 $ 78,960 $ 77,479 $ 75,119
====================================================
Loans past due
90 days or
more (a) $187,974 $213,658 $193,156 $189,819 $206,175
Guaranteed por-
tion of loans
past due 90 days
or more (a) 159,548 178,838 166,891 165,216 181,692
Period-end loans,
net of unearned
income
(millions) $ 21,187 $ 20,601 $ 19,212 $ 18,429 $ 17,184
Insured loans 812 827 667 831 801
---------------------------------------------------------------------
Loans excluding
insured loans $ 20,375 $ 19,774 $ 18,545 $ 17,598 $ 16,383
====================================================
Off-balance sheet
commitments
(millions) (b) $ 7,787 $ 9,091 $ 8,751 $ 6,871 $ 6,465
---------------------------------------------------------------------
(a) Includes loans held for sale.
(b) Amount of off-balance sheet commitments for which a reserve
has been provided.
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-4
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
1Q06 4Q05 3Q05 2Q05 1Q05
---------------------------------------------------------------------
FHN CONSOLIDATED:
Nonperforming loans
ratio (a) .23% .20% .20% .22% .23%
Nonperforming assets
ratio (b) .37 .33 .35 .36 .38
Allowance to total
loans .92 .92 .96 .92 .96
Allowance to loans
excluding insured
loans .96 .96 1.00 .96 1.00
Allowance to
nonperforming
loans (c) 395.30 465.29 471.58 426.46 408.85
Allowance to
nonperforming
assets (d) 248.66 278.24 275.78 253.55 249.33
Net charge-off
ratio (e) .22 .22 .20 .23 .17
RETAIL/COMMERCIAL
BANKING:
Nonperforming assets
ratio (b) .33% .29% .31% .32% .34%
Allowance to non-
performing assets 283.08 317.75 313.02 290.38 282.52
MORTGAGE BANKING:
Nonperforming assets
ratio (f) .03% .02% .02% .02% .02%
---------------------------------------------------------------------
(a) Ratio is nonperforming loans in the loan portfolio to total
loans
(b) Ratio is nonperforming assets related to the loan portfolio to
total loans plus foreclosed real estate and other assets
(c) Ratio is allowance to nonperforming loans in the loan
portfolio
(d) Ratio is allowance to nonperforming assets related to the loan
portfolio
(e) Ratio is annualized net charge-offs to average total loans
(f) Ratio is nonperforming assets to unpaid principal balance of
servicing portfolio
Certain previously reported amounts have been reclassified
to agree with current presentation.
A-5
FIRST HORIZON NATIONAL CORPORATION
BUSINESS SEGMENT HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
(Thousands) 1Q06 4Q05 3Q05 2Q05 1Q05
---------------------------------------------------------------------
RETAIL/COMMERCIAL
BANKING
Total revenues(a) $ 331,362 $341,409 $331,459 $311,124 $299,512
Provision for loan
losses 18,026 15,897 22,428 15,667 13,069
Noninterest
expenses 215,555 203,017 199,541 192,645 179,634
-------------------------------------------------
Pre-tax income 97,781 122,495 109,490 102,812 106,809
Provision for
income taxes 27,899 36,161 33,050 31,064 33,902
-------------------------------------------------
Income from
continuing
operations 69,882 86,334 76,440 71,748 72,907
Income from
discontinued
operations, net
of tax 210,273 5,369 4,830 3,858 3,015
-------------------------------------------------
Income before
cumulative effect 280,155 91,703 81,270 75,606 75,922
Cumulative effect
of changes in
accounting
principle, net
of tax 522 (3,098) -- -- --
-------------------------------------------------
Net income $ 280,677 $ 88,605 $ 81,270 $ 75,606 $ 75,922
MORTGAGE BANKING
Total revenues(a) $ 120,119 $154,521 $193,023 $155,626 $155,823
Provision for
loan losses (227) 278 180 119 40
Noninterest
expenses 125,699 115,398 132,365 113,677 110,016
-------------------------------------------------
Pre-tax (loss)/
income (5,353) 38,845 60,478 41,830 45,767
(Benefit)/provision
for income taxes (2,114) 12,081 21,839 14,972 16,413
-------------------------------------------------
Income before
cumulative effect (3,239) 26,764 38,639 26,858 29,354
Cumulative effect
of changes in
accounting
principle, net
of tax 414 -- -- -- --
-------------------------------------------------
Net (loss)/income $ (2,825) $ 26,764 $ 38,639 $ 26,858 $ 29,354
CAPITAL MARKETS
Total revenues(a) $ 93,340 $ 79,005 $ 78,497 $ 90,806 $ 91,202
Noninterest expenses 86,379 75,759 76,093 82,757 81,813
-------------------------------------------------
Pre-tax income 6,961 3,246 2,404 8,049 9,389
Provision for
income taxes 1,745 1,076 481 2,161 4,049
-------------------------------------------------
Income before
cumulative effect 5,216 2,170 1,923 5,888 5,340
Cumulative effect
of changes in
accounting
principle, net
of tax 179 -- -- -- --
-------------------------------------------------
Net income $ 5,395 $ 2,170 $ 1,923 $ 5,888 $ 5,340
CORPORATE
Total revenues(a) $ (93,356) $ 875 $ 3,780 $ 4,165 $ 3,788
Noninterest
expenses 15,582 19,118 18,176 17,143 13,074
-------------------------------------------------
Pre-tax loss (108,938) (18,243) (14,396) (12,978) (9,286)
Income tax benefit (40,489) (6,623) (5,508) (4,630) (4,500)
-------------------------------------------------
Income before
cumulative effect (68,449) (11,620) (8,888) (8,348) (4,786)
Cumulative effect
of changes in
accounting
principle, net
of tax 230 -- -- -- --
-------------------------------------------------
Net loss $ (68,219) $(11,620) $ (8,888) $ (8,348) $ (4,786)
TOTAL CONSOLIDATED
Total revenues(a) $ 451,465 $575,810 $606,759 $561,721 $550,325
Provision for
loan losses 17,799 16,175 22,608 15,786 13,109
Total noninterest
expenses 443,215 413,292 426,175 406,222 384,537
-------------------------------------------------
Consolidated pre-
tax (loss)/income (9,549) 146,343 157,976 139,713 152,679
(Benefit)/provision
for income taxes (12,959) 42,695 49,862 43,567 49,864
-------------------------------------------------
Income from
continuing
operations 3,410 103,648 108,114 96,146 102,815
Income from
discontinued
operations, net
of tax 210,273 5,369 4,830 3,858 3,015
-------------------------------------------------
Income before
cumulative effect 213,683 109,017 112,944 100,004 105,830
Cumulative effect
of changes in
accounting
principle, net
of tax 1,345 (3,098) -- -- --
-------------------------------------------------
Net income $ 215,028 $105,919 $112,944 $100,004 $105,830
=================================================
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) Includes noninterest income and net interest income/(expense)
A-6
CONTACT: First Horizon National Corp.
Media Information:
Kim Cherry
901-523-4726
Investor Relations:
Mark Yates
901-523-4068
