First Horizon Q4 Results: $1.97 Loss Per Share, Dividend Reduction, Tennessee Bank Franchise Remains Solidly Profitable
MEMPHIS, Tenn., Jan. 16, 2008 (PRIME NEWSWIRE) -- First Horizon National Corporation's (NYSE:FHN) board of directors has approved payment of a quarterly dividend of $.20 per share. The dividend is payable on April 1, 2008, to shareholders of record on March 14, 2008. This is the 446th consecutive quarter that First Horizon has paid a dividend. First Horizon also announced results for the quarter ended December 31, 2007, and other matters, including the following:
* A net loss of $248.6 million or $1.97 per diluted share in fourth
quarter 2007 compared to a net loss of $14.2 million or $.11 per
diluted share in third quarter 2007
* Increased provisioning reflects inherent losses in national
construction portfolios; net charge-offs increase to 93 basis points
* First Tennessee Banking franchise generates strong net interest
margin, drives growth in deposit fees
* Capital Markets sees improved profitability from increases in both
fixed income and other product revenues
* Mortgage Banking recognizes valuation adjustments for servicing
assets and impairment of goodwill reflecting industry conditions
* Recognition of contingent guarantee related to Visa's litigation
matters negatively impacts earnings
* Continuing implementation of earnings enhancement initiatives
results in $26.6 million of net pre-tax charges in fourth quarter;
additional charges, as well as gains from the sale of the remaining
First Horizon Bank branches are expected in first quarter 2008
Pre-tax loss, for FHN, before discontinued operations, was $399.1 million in fourth quarter 2007 compared to a $23.7 million pre-tax loss in third quarter 2007. Total revenues were $319.0 million in fourth quarter compared to $441.2 million in third quarter 2007. Noninterest expenses were $561.5 million compared to $421.6 million in third quarter 2007. Provision for loan losses increased $113.3 million to $156.6 million in fourth quarter 2007.
In fourth quarter 2007 average total loans declined 1 percent in comparison to third quarter 2007. Total average deposits decreased 10 percent for the same time period which reflects a shift from wholesale CDs to more stable funding sources and the divestiture of First Horizon Bank branches. Consolidated net interest margin declined to 2.77 percent from 2.87 percent primarily reflecting the impact of elevated LIBOR during fourth quarter 2007.
For the twelve months ended December 31, 2007, the net loss was $170.1 million or $1.35 per diluted share compared to earnings of $462.9 million or $3.62 diluted earnings per share for the same period in 2006. For the twelve months ended December 31, 2007, return on average shareholders' equity and return on average assets were (7.02) percent and (.45) percent, respectively. For the same period in 2006, return on average shareholders' equity and return on average assets were 19.1 percent and 1.19 percent, respectively.
"Current market conditions require definitive management actions to adequately address the operating environment and to position the company for consistent revenue growth and greater return for our shareholders," said Jerry Baker, CEO of FHN. "As such, we have acted in several key areas by increasing loan loss reserves, reducing our mortgage servicing assets and national lending businesses, implementing productivity enhancements, and selling or reducing low returning operations. In combination with our dividend reduction, these changes should improve our capital position in 2008 and allow us to make the proper investments that leverage the fundamental strength of our Tennessee banking franchise."
Baker concluded, "We will continue to make further significant adjustments to our mortgage and related lending businesses, including pursuing strategic alternatives to further reduce our exposure to these areas."
PERFORMANCE HIGHLIGHTS (Fourth Quarter 2007 vs. Third Quarter 2007)
Retail/Commercial Bank Experiences Increased Provisioning
Retail/Commercial Banking experienced a pre-tax loss of $51.8 million for fourth quarter 2007, compared to pre-tax income of $78.3 million for third quarter 2007. While the Tennessee bank franchise was solidly profitable in fourth quarter as customer and account trends remained strong, results for the current quarter were affected by increased provisioning for loan losses to reflect inherent losses within the national construction portfolios. Fourth quarter net interest margin was 3.71% for the Retail Commercial Banking segment and was 4.88% for Regional Banking. Noninterest income was adversely affected by reduced revenue from loan sales and securitizations which was partially offset by increases in fees from deposit accounts. Noninterest expense increased slightly from recognition of losses on owned real estate and reductions in value of low income housing investments. These increases were partially offset by a decline in personnel costs from a combination of reduced variable compensation costs on loa n originations as well as the effects of efficiency initiatives.
Servicing Asset and Goodwill Write Downs Affect Mortgage Banking Results
Mortgage Banking had a pre-tax loss of $262.8 million for fourth quarter 2007, compared to a pre-tax loss of $45.8 million for third quarter 2007, which primarily reflects recognition of reductions in values of mortgage servicing rights and other retained interests, impairment of goodwill and the continued deterioration of credit markets during the quarter. Net interest income declined consistent with decreases in the average warehouse size. In comparison to prior quarter, the decline in deliveries outpaced the decline in origination volumes producing an increase in the ending warehouse balance. Credit market pricing stresses again negatively affected gain on sale margins as well as prompting write downs of warehouse loans. Hedging results negatively impacted performance due to capital markets volatility and lower liquidity in certain hedging instruments which triggered increased transaction costs to maintain a targeted hedge profile. The value of servicing assets was negatively impacted by write downs to reflect lower values from observable market inputs and third party valuations. Partially offsetting this loss was a decline in servicing run-off. Noninterest expense increased due to the impairment of goodwill and recognition of a legal settlement which were slightly offset by lower levels of compensation from lower production volumes and the effect of efficiency initiatives.
Capital Markets Sees Improvement in Revenues and Profitability
Capital Markets recognized pre-tax income of $21.0 million in fourth quarter 2007 compared to a $7.7 million pre-tax loss in third quarter 2007. This primarily reflects improvements in fixed income sales as the Federal Reserve reduced rates which resulted in a steeper yield curve. Other product revenues also improved over third quarter, but remain below historical levels as FHN continues to experience the effects of market illiquidity on the pooled trust preferred product. Additionally, net interest expense improved over third quarter. These effects were partially offset by an increase in noninterest expense from higher production levels.
Corporate Segment Reflects Visa Guarantee and Earnings Enhancement Initiatives
The Corporate segment recognized $55.7 million of expense related to a contingent guarantee of Visa's obligations related to certain litigation matters. Any expense recognized related to this contingent guarantee is expected to reverse upon Visa's completion of its initial public offering. Securities losses of $10.4 million were recognized in the current quarter related to write downs of equity securities. Results for fourth quarter 2007 also include $26.6 million of net expenses associated with implementation of restructuring, repositioning and efficiency initiatives. This amount includes $35.9 million of expenses and $6.4 million of transaction costs from selling mortgage servicing rights which were partially offset by $15.7 million of gains from the disposition of 15 First Horizon Bank branches. Results for third quarter 2007 reflected $32.8 million of expenses for earnings enhancement initiatives. Ongoing initiatives include:
* Enterprise efficiency initiatives including organization and
compensation redesign, procurement centralization and multisourcing
efforts, and repositioning of non-core businesses
* First Horizon Banks divestiture consisting of an additional 19
full-service locations
* Restructuring of mortgage operations through office closures,
associated sales force decreases, and reduction of management and
support staff
* Downsizing of national lending operations through reduction of
consumer and construction sales forces and decreasing management,
support staff and back-office costs
Provision Increases to Reflect Inherent Losses; Charge-Offs Increase Sequentially
The net charge-off ratio was 93 basis points in fourth quarter 2007 compared to 57 basis points in third quarter 2007 as net charge-offs increased to $50.8 million from $31.4 million in third quarter 2007. Provision for loan losses increased to $156.6 million in fourth quarter 2007 from $43.3 million in third quarter 2007. Provisioning for fourth quarter 2007 reflects recognition of inherent losses within residential construction portfolios, including One-Time Close and Homebuilder Finance, related to discontinued product structures and higher-risk national markets such as Florida, California, Virginia, Georgia and Nevada. The nonperforming asset ratio increased to 166 basis points in fourth quarter 2007 from 113 basis points in third quarter 2007.
OTHER INFORMATION
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 or therein to reflect future events or developments.
FHN provides additional disclosure and discussion related to FHN's earnings and business segment performance through a financial supplement, which will be available on FHN's Web site at www.fhnc.com. Management will also host a conference call at 8:00 a.m. Central Time January 17 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 January 17 by dialing 1-877-397-0292 (international participants dial 1-719-325-4919). The conference will also be webcast live through First Horizon's web site. To access the webcast, visit the investor relations section of www.fhnc.com. A replay of the call will be available from 11 a.m. Central Time January 17 until 11 p.m. January 31 by calling 1-888-203-1112 or 1-719-457-0820 for international participants. The passcode is 8543815. The event will be archived and made available by 1 p.m. Central Time January 17 in the investor relations section of First Horizon's Web site at www.fhnc.co m. For four weeks from the 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 or therein, we will not provide any earnings guidance, directly or indirectly, express or implied.
GENERAL INFORMATION
About First Horizon
The 10,000 employees of First Horizon National Corp. (NYSE:FHN) provide financial services to individuals and business customers through hundreds of offices located in more than 40 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 mortgage originators and
recipient of consecutive awards for servicing excellence from Fannie
Mae and Freddie Mac
* 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 CRO magazine. More information can be found at www.fhnc.com.
SUMMARY QUARTERLY RESULTS
Quarterly, Unaudited
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(Thousands) 4Q07 3Q07 2Q07
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INCOME STATEMENT HIGHLIGHTS
Net interest income $ 225,987 $ 237,804 $ 239,432
Noninterest income 103,429 203,475 281,313
Securities (losses)/gains,
net (10,442) -- (1,014)
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Total revenue 318,974 441,279 519,731
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Noninterest expense 561,559 421,622 457,240
Provision 156,519 43,352 44,408
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Pre-tax (loss)/income (399,104) (23,695) 18,083
(Benefit)/provision for
income taxes (146,342) (9,330) (3,861)
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(Loss)/income from continuing
operations (252,762) (14,365) 21,944
Income/(loss) from
discontinued operations,
net of tax 4,137 209 179
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Net (loss)/income $ (248,625) $ (14,156) $ 22,123
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COMMON STOCK DATA
Diluted EPS from continuing
operations $ (2.00) $ (.11) $ .17
Diluted EPS (1.97) (.11) .17
Diluted shares 126,089 126,058 128,737
Period-end shares outstanding 126,366 126,388 126,237
Dividends declared per share $ .45 $ .45 $ .45
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BALANCE SHEET HIGHLIGHTS
(PERIOD END)
Total loans, net of
unearned income $22,103,516 $21,973,004 $22,382,303
Total loans held for
sale-divestiture(a) 289,878 565,492 --
Total deposits 17,032,285 18,635,359 21,761,683
Total deposits-divestiture(a) 230,418 474,809 --
Total assets 37,015,461 37,478,252 38,394,084
Total assets-divestiture(a) 305,734 588,115 --
Total liabilities 34,584,588 34,761,148 35,635,325
Total liabilities-
divestiture(a) 232,343 514,198 --
Total shareholders' equity 2,135,596 2,421,827 2,463,482
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KEY RATIOS & OTHER
Return on average assets (2.65)% (.15)% .23%
Return on average equity (42.52)% (2.31)% 3.57%
Net interest margin 2.77 % 2.87 % 2.79%
Efficiency ratio 176.1 % 95.5 % 88.0%
Book Value Per Share $ 16.83 $ 19.08 $ 19.43
Tangible Book Value Per Share 14.86 16.51 16.73
FTE employees 9,941 11,052 11,903
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4Q07 Change vs.
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(Thousands) 1Q07 4Q06 3Q07 4Q06
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INCOME STATEMENT HIGHLIGHTS
Net interest income $ 237,419 $ 245,997 (5)% (8)%
Noninterest income 272,915 313,342 (49)% (67)%
Securities (losses)/gains, net 10,273 3,002 NM NM
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Total revenue 520,607 562,341 (28)% (43)%
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Noninterest expense 403,012 431,630 33 % 30 %
Provision 28,486 22,983 261 % 581 %
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Pre-tax (loss)/income 89,109 107,728 NM NM
(Benefit)/provision for income
taxes 18,802 31,448 NM NM
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(Loss)/income from continuing
operations 70,307 76,280 NM NM
Income/(loss) from
discontinued operations,
net of tax 240 187 NM NM
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Net (loss)/income $ 70,547 $ 76,467 NM NM
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COMMON STOCK DATA
Diluted EPS from continuing
operations $ .55 $ .60 NM NM
Diluted EPS .55 .60 NM NM
Diluted shares 128,704 127,784 * (1)%
Period-end shares outstanding 125,749 124,866 * 1 %
Dividends declared per share $ .45 $ .45 -- --
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BALANCE SHEET HIGHLIGHTS
(PERIOD END)
Total loans, net of unearned
income $22,268,190 $22,104,905 1% *
Total loans held for
sale-divestiture(a) -- -- NM NM
Total deposits 22,491,951 20,213,232 (9)% (16)%
Total deposits-divestiture(a) -- -- NM NM
Total assets 38,828,766 37,918,259 (1)% (2)%
Total assets-divestiture(a) -- -- NM NM
Total liabilities 36,018,813 35,160,599 (1)% (2)%
Total liabilities-
divestiture(a) -- -- NM NM
Total shareholders' equity 2,514,676 2,462,390 (12)% (13)%
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KEY RATIOS & OTHER
Return on average assets .74% .77%
Return on average equity 11.61% 12.08%
Net interest margin 2.84% 2.85%
Efficiency ratio 77.4% 76.8%
Book Value Per Share $ 19.88 $ 19.61
Tangible Book Value Per Share 17.22 16.90
FTE employees 12,018 12,131 (10)% (18)%
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NM - Not meaningful
* Amount is less than one percent
(a) Associated with the sale of First Horizon Bank branches
CONTACT: First Horizon National Corp.
Media Information:
Kim Cherry
(901) 523-4380
Investor Relations:
Dave Miller
(901) 523-4162
