-- Retail/Commercial Banking pre-tax earnings grew 68 percent
-- Loans grew 22 percent and asset quality continued to improve
-- Mortgage Banking origination revenue reflected a substantially
lower level of industry-wide refinance activity
-- Capital Markets' fixed revenues declined as the demand for fixed
income securities lessened
-- Corporate segment earnings improved due to securities gains and
reduced discretionary spending
-- Return on equity was 23.9 percent and return on assets was 1.66
percent
MEMPHIS, Tenn., Jan. 19, 2005 (PRIMEZONE) -- First Horizon National Corporation (FHN) announced earnings of $454.4 million, or $3.54 diluted earnings per share for 2004. This compares to 2003 earnings of $473.3 million, or $3.62 diluted earnings per share.
"2004 results reflect the impact of the unfavorable interest rate environment that we saw for much of the second half of the year," said Ken Glass, chairman and CEO. "The mortgage and fixed income businesses were most affected, while the retail and commercial banking business achieved substantial growth, rebalancing our business mix. With the exception of the impact of an accounting change, earnings were relatively flat with 2003's record performance in spite of the difficult environment."
Glass continued, "In addition, we were able to make significant progress in 2004 through our focus on recruitment of relationship managers and acquisition of customers. As a result, our national expansion strategies are producing significant results as evidenced by the $118 million increase in pre-tax contribution from these strategies in 2004. Finally the acquisition of the fixed income group of Spear Leeds and Kellogg will enhance our capital markets group's sales force, product offerings, and execution capabilities."
Return on average shareholders' equity and return on average assets were 23.9 percent and 1.66 percent, respectively, in 2004 compared to 26.3 percent and 1.88 percent in 2003. Total assets were $29.8 billion and shareholders' equity was $2.0 billion on December 31, 2004, compared to $24.5 billion and $1.9 billion, respectively, on December 31, 2003.
Glass concluded, "We feel that our focus on execution in 2004 has positioned us well to capture the market opportunity in 2005 and beyond."
ANNUAL PERFORMANCE HIGHLIGHTS
Retail/Commercial Banking
Pre-tax earnings grew from $245.6 million to $412.6 million, or 68 percent over 2003. This growth resulted from national expansion initiatives, improved asset quality, fee income growth and efficiency improvements.
Total loan growth of 21 percent consisted of 30 percent growth in consumer loans and 12 percent growth in commercial loans. Consumer loan growth primarily came from leveraging FHN's national platform and commercial loan growth resulted from the national expansion of single-family residential construction lending and improvements in general economic conditions. Deposit account balances grew 3 percent compared to 2003; however, that growth was impacted by the divestiture of First National Bank of Springdale (FNB) on December 31, 2003, which had total deposits of approximately $300 million in 2003. As a result of this product growth, net interest income related to retail/commercial banking activities grew 17 percent over last year.
Noninterest income grew 9 percent to $483.1 million and represented 41 percent of revenues. Contributing to this growth were net gains of $24.0 million in 2004 from the securitization of home equity lines of credit and second-lien mortgages as FHN continues to utilize securitizations to manage liquidity and fund new loan growth. Merchant processing fees grew 30 percent influenced by both new and existing clients. Included in 2004's performance are $7.0 million of divestiture gains compared to $22.5 million in 2003 as FHN continues to divest non-strategic activities.
Net charge-offs fell to 27 basis points, reflecting the reduced risk in the loan portfolio due to a change in the loan mix and further economic recovery, which resulted in a $36.7 million reduction in provision for loan losses. Noninterest expense increased $12.0 million primarily due to development in the national markets including equity lending, single family residential construction lending and expansion in Middle Tennessee and Northern Virginia. The efficiency ratio for retail/commercial banking activities has consistently shown improvement over the last five quarters as discretionary spending has been reduced and the returns on last year's investments and operational improvements continue to pay off.
Mortgage Banking
Pre-tax earnings decreased from $387.0 million in 2003 to $180.1 million in 2004, primarily driven by declining originations due to a drop in refinancing activity and competitive pricing pressures. Partially offsetting the decline in originations was improvement in servicing profitability due to reduced impairment expense and growth in the servicing portfolio coupled with a more efficient servicing operation.
Mortgage origination volume fell $16.6 billion, or 35 percent to $30.5 billion, as refinancing volume declined from 72 percent of total originations in 2003 to 45 percent this year. In addition, loans delivered during the period decreased by $20.2 billion. This decrease, combined with other market factors, reduced origination revenue by approximately $180 million. Additionally, margins on loans sold decreased as competitive pressures in the market unfavorably impacted origination revenue by approximately $82 million. Overall, origination revenues decreased $262.4 million. Although total origination volumes were down, the large reduction in refinancings was partially offset by improved home purchase originations. Home purchase originations increased 26 percent as the housing market continued to improve.
Net servicing revenues improved $75.6 million from $8.2 million in 2003 to $83.8 million in 2004. Total fees associated with mortgage servicing increased 23 percent to $230.4 million due to growth in the servicing portfolio and the favorable impact of lower prepayment activity. The mortgage-servicing portfolio was $86.6 billion on December 31, 2004, an increase of 26 percent from $68.9 billion on December 31, 2003. The portfolio on December 31, 2004, includes approximately $11 billion of servicing rights acquired in 2004. MSR net hedge gains decreased 58 percent to $47.9 million from $115.1 million; however, MSR impairment decreased $121.3 million, triggered by the impact that rising interest rates had on mortgage prepayments in the servicing portfolio.
Noninterest expense improved $27.8 million reflecting the overall decline in activity levels. Additionally, as a result of reduced refinancing activity and improvements in processes and technology, productivity improved resulting in a 16 percent reduction of servicing costs per loan compared to year-end 2003.
Capital Markets
Pre-tax earnings declined from $154.6 million in 2003 to $83.2 million in 2004 primarily due to a reduction in fixed income securities sales, net of a related decline in commissions and incentives. Significant uncertainties within the investment community regarding interest rates and other economic factors have caused fixed income investors to delay their purchases. In addition to this impact, last year was favorably impacted by higher cash flows from the prepayments of mortgage-backed products and agency calls. As a result of these impacts, revenues from fixed income sales to depository and non-depository investors fell $133.6 million. Revenues from other fee sources include fee income from activities such as investment banking, equity research, portfolio advisory and the sale of bank owned life insurance. These revenues decreased 16 percent from last year's revenues primarily as a result of lower revenue in structured finance transactions.
Noninterest expense decreased 24 percent or $95.9 million, primarily due to lower personnel expense, reflecting the decline in commissions and incentives.
Corporate
The Corporate segment improved from a $68.2 million pre-tax loss last year to a $9.1 million pre-tax loss this year. Reduced discretionary spending helped lower expenses by $47.6 million to $43.8 million. Net security gains for 2004 include $18.4 million of gains from sales of investment securities. In 2003 sales of lower-yielding securities in the investment portfolio resulted in net losses of $7.0 million. Net gains from equity investments of $5.3 million were realized in 2004 primarily due to the liquidation of a holding company investment. This compares to net gains of $8.6 million last year primarily resulting from the sale of a venture capital investment. In addition, a loss of $3.9 million was recognized in 2004 related to other-than-temporary impairment of an investment in Freddie Mac equity securities. Net interest income decreased $9.3 million since last year as a result of the temporary reduction in the investment portfolio, the repurchase of REMIC securities in 2003, and a decline in the earnings credit on allocated capital.
ANNUAL INCOME STATEMENT HIGHLIGHTS
Revenue
Total revenue decreased 10 percent to $2,219.4 million in 2004 from $2,473.4 million in 2003. Noninterest income provides the majority of FHN's revenue and contributed 61 percent to total revenue in 2004 compared to 67 percent in 2003.
Net Interest Income
During 2004 net interest income increased 6 percent to $856.3 million from $805.8 million in 2003. Net interest income was positively impacted by growth in the retail and commercial lending portfolios, as loans now comprise 65 percent of the earning asset base compared to 59 percent in 2003. Some of this positive impact was offset by an increase in funding costs as noninterest-bearing deposits decreased 9 percent, largely due to lower custodial balances in mortgage banking. In addition, FNB, which was divested on December 31, 2003, contributed $10.5 million to net interest income in 2003. The net interest margin was 3.62 percent for 2004 compared to 3.78 percent for 2003. The net interest margin compressed 16 basis points as total funding costs increased 11 basis points and the yield on average earning assets decreased two basis points.
In the near-term, a modest compression of the net interest margin is expected as an increase in short-term rates will negatively impact the spread on the mortgage warehouse. Over the long-term, FHN's strategies to manage the interest rate sensitivity of the balance sheet position are designed to allow the net interest margin to improve in a higher interest rate environment.
Noninterest Income
Noninterest income decreased 18 percent to $1,363.1 million in 2004 from $1,667.6 million in 2003. The decline in noninterest income primarily resulted from the contraction in mortgage banking and capital markets revenues, which fell $367.1 million in total. All other noninterest income categories grew 13 percent, or $62.6 million. This growth was led by the retail/commercial bank's $24.0 million net gains on securitizations, an increase of $18.3 million in securities gains and an increase of $17.5 million in merchant processing noninterest income.
Noninterest Expense
Total noninterest expense for 2004 decreased 10 percent to $1,504.3 million from $1,667.7 million in 2003. Noninterest expense included $85.4 million of discretionary spending on performance enhancing initiatives in 2003.
Personnel expense decreased 8 percent to $915.0 million from $995.6 million in 2003 primarily due to lower activity levels in Capital Markets in 2004.
Other noninterest expense decreased 24 percent to $300.6 million in 2004 from $393.1 million in 2003. The improvement in other noninterest expense primarily reflects $63.9 million of discretionary spending on performance enhancing initiatives in 2003.
Provision for Loan Losses / Asset Quality
The provision for loan losses decreased 44 percent to $48.3 million in 2004 compared to $86.7 million in 2003. An analytical model based on historical loss experience adjusted for current events, trends and economic conditions is used by management to determine the amount of provision to be recognized and to assess the adequacy of the loan loss allowance. The improvement in 2004's provision is related to the positive shift in the mix of the loan portfolio and the reduction in specific allocations related to large commercial credits. The risk profile of the retail loan portfolio has continued to improve as the mix shifted to a greater concentration of high credit score products, which require lower reserves. The risk profile of the commercial loan portfolio improved as indicated by current lower levels of watch and classified loans. Also, net charge-offs decreased to $42.1 million in 2004 compared to $68.0 million in 2003. Net charge-offs were impacted by improvement in both the retail and commercial loan portfolios. Nonperforming loans in retail/commercial banking were $41.1 million on December 31, 2004, compared to $43.2 million on December 31, 2003. (See the table on A-6 for an analysis of the allowance for loan losses and details on nonperforming assets and the table on A-7 for asset quality ratios).
ANNUAL AVERAGE BALANCE SHEET
Total average assets increased 9 percent to $27.3 billion for 2004. Total loans increased 22 percent to $15.4 billion as retail loans increased 30 percent and commercial loans grew 12 percent. Loans held for sale decreased 5 percent to $4.2 billion. Interest-bearing core deposits increased 4 percent to $6.1 billion, however, that growth was negatively impacted by the divestiture of First National Bank of Springdale on December 31, 2003, which had core deposits of approximately $200 million, or 3 percent of FHN's total interest-bearing core deposits. Total core deposits decreased 2 percent primarily due to a decline in mortgage escrow balances as refinancing activity lessened and the divestiture of FNB. Purchased funds increased 17 percent to $11.2 billion, and term borrowings increased 67 percent to $2.2 billion. Average shareholders' equity increased 6 percent in 2004 compared to 2003. (See A-9 for additional information on the balance sheet impact of certain transactions and new accounting standards.)
FOURTH QUARTER HIGHLIGHTS
During fourth quarter 2004 earnings totaled $103.1 million, or $.81 diluted earnings per share. This compares to fourth quarter 2003 earnings of $117.6 million, or $.90 diluted earnings per share. Return on average shareholders' equity and return on average assets for fourth quarter 2004 were 20.8 percent and 1.40 percent, respectively, compared to 25.2 percent and 1.89 percent for fourth quarter 2003.
Fourth quarter performance continued to reflect compression in earnings as Mortgage Banking experienced competitive pricing pressures and unfavorable impacts from servicing hedging and impairment costs and as Capital Markets continued to have lower earnings from fixed income sales and lower revenue in structured finance transactions. The Corporate segment also contributed to the earnings compression with securities losses resulting from impairment of Freddie Mac stock and a decline in net interest income. Retail/Commercial Banking's earnings (82 percent of this quarter's pre-tax earnings) improved significantly as increased net interest income reflected loan growth of 23 percent, while a favorable change in the mix of the loan portfolio as well as the continued economic recovery resulted in a lower provision. Noninterest income in the retail commercial bank remained stable as fourth quarter 2004 had securitization gains of $16 million and divestiture gains of $3 million while fourth quarter 2003 had divestiture gains of $22 million (See the table on A-8 for additional detail on quarterly segment performance).
OUTLOOK
"Now that retail/commercial banking has rebalanced to approximately 80 percent of our pre-tax earnings and the national expansion initiatives continue to progress, we expect to resume earnings per share growth in 2005," said Chief Financial Officer, Marty Mosby. "While we experience short-term favorable and unfavorable volatility in our earnings stream, we believe that over the long term we will continue to operate at a level consistent with high-performing growth and maintain return on equity at industry-leading levels. We have been able to accomplish this goal over the last three and five year periods as demonstrated by our average annual earnings per share growth of 14 percent and our average annual return on equity of greater than 20 percent."
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, competition, investor responses to these conditions, ability to execute business plans, geopolitical developments, items already mentioned in this press release, 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.
In compliance with the SEC's regulations concerning fair disclosure, 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.FirstHorizon.com.
Management will also host a conference call at 9:00 a.m. Eastern Time Wednesday, January 19, 2005, to review earnings and performance trends. Callers wishing to participate in the call may dial toll-free starting at 8:45 a.m. Eastern Time January 19, 2005, at 1-800-946-0786. The conference will be webcast live through the investor relations section of FHN's Web site. To access the webcast, visit http://www.shareholder.com/ftb/medialist.cfm. A replay of the call will be available from noon Eastern Time January 19, 2005, until Wednesday, February 2, 2005, by calling (888)203-1112 or (719)457-0820 for international participants. The passcode is 994161. The event will be archived and made available by 2:00 p.m. Eastern Time January 19, 2005, on First Horizon's Web site at www.FirstHorizon.com. 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 provided herein, we will not provide any earnings guidance, directly or indirectly, express or implied.
GENERAL INFORMATION
About First Horizon
The 12,000 employees of First Horizon National Corp. (NYSE:FHN) provide financial services to individual 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, with one of the nation's top underwriters of U.S.
government agency securities
-- Mortgage Banking, with one of the nation's top 15 mortgage
originators and 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, Business Week 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.FirstHorizon.com.
FIRST HORIZON NATIONAL CORPORATION
STATEMENTS OF INCOME
Yearly Growth
(Unaudited)
---------------------------------------------------------------------
Year-to-date
December 31
------------------------
Growth
(Thousands) 2004 2003 Rate (%)
---------------------------------------------------------------------
Interest income $1,166,802 $1,053,370 10.8 +
Less interest expense 310,491 247,586 25.4 +
---------------------------------------------------------------------
Net interest income 856,311 805,784 6.3 +
Provision for loan losses 48,348 86,698 44.2 --
---------------------------------------------------------------------
Net interest income after
provision for loan losses 807,963 719,086 12.4 +
Noninterest income:
Mortgage banking 444,758 649,496 31.5 --
Capital markets 376,558 538,919 30.1 --
Deposit transactions and cash
management 148,514 146,701 1.2 +
Merchant processing 75,086 57,609 30.3 +
Insurance premiums and
commissions 56,109 57,811 2.9 --
Trust services and investment
management 47,274 45,873 3.1 +
Gains on divestitures 7,000 22,498 NM
Securities gains/(losses), net 20,748 2,378 NM
Other 187,139 146,299 27.9 +
---------------------------------------------------------------------
Total noninterest income 1,363,186 1,667,584 18.3 --
---------------------------------------------------------------------
Adjusted gross income after
provision for loan losses 2,171,149 2,386,670 9.0 --
Noninterest expense:
Employee compensation,
incentives and benefits 914,947 995,609 8.1 --
Occupancy 89,402 83,583 7.0 +
Equipment rentals,
depreciation, and maintenance 72,695 68,973 5.4 +
Operations services 67,523 67,948 .6 --
Communications and courier 49,590 50,535 1.9 --
Amortization of intangible
assets 9,541 7,980 19.6 +
Other 300,642 393,044 23.5 --
---------------------------------------------------------------------
Total noninterest expense 1,504,340 1,667,672 9.8 --
---------------------------------------------------------------------
Pretax income 666,809 718,998 7.3 --
Applicable income taxes 212,401 245,689 13.5 --
---------------------------------------------------------------------
Net income $ 454,408 $ 473,309 4.0 --
========================
---------------------------------------------------------------------
Diluted earnings per common
share $ 3.54 $ 3.62 2.2 --
Dividends declared $ 1.63 $ 1.30
SELECTED FINANCIAL RATIOS:
-------------------------
Return on average assets 1.66% 1.88%
Return on average shareholders'
equity 23.9 26.3
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-1
FIRST HORIZON NATIONAL CORPORATION
STATEMENTS OF INCOME
Quarterly Growth
(Unaudited)
---------------------------------------------------------------------
Quarter Ended
December 31
-----------------------
Growth
(Thousands) 2004 2003 Rate (%)
------------------------------------------------------------------
Interest income $ 334,789 $ 253,184 32.2 +
Less interest expense 106,343 56,742 87.4 +
------------------------------------------------------------------
Net interest income 228,446 196,442 16.3 +
Provision for loan losses 11,783 15,392 23.4 --
------------------------------------------------------------------
Net interest income after
provision for loan losses 216,663 181,050 19.7 +
Noninterest income:
Mortgage banking 94,771 127,330 25.6 --
Capital markets 76,522 117,770 35.0 --
Deposit transactions and
cash management 37,695 37,971 .7 --
Merchant processing 19,679 15,878 23.9 +
Insurance premiums and
commissions 11,649 13,698 15.0 --
Trust services and
investment management 11,741 11,654 .7 +
Gains on divestitures 3,200 22,498 NM
Securities (losses)/gains,
net (3,734) 8 NM
Other 61,625 39,751 55.0 +
------------------------------------------------------------------
Total noninterest income 313,148 386,558 19.0 --
------------------------------------------------------------------
Adjusted gross income
after provision for loan
losses 529,811 567,608 6.7 --
Noninterest expense:
Employee compensation,
incentives and benefits 228,206 218,968 4.2 +
Occupancy 22,875 21,569 6.1 +
Equipment rentals,
depreciation, and
maintenance 18,633 17,957 3.8 +
Operations services 18,379 15,160 21.2 +
Communications and courier 12,446 13,324 6.6 --
Amortization of intangible
assets 3,014 2,403 25.4 +
Other 79,135 92,623 14.6 --
------------------------------------------------------------------
Total noninterest expense 382,688 382,004 .2 +
------------------------------------------------------------------
Pretax income 147,123 185,604 20.7 --
Applicable income taxes 43,971 67,959 35.3 --
------------------------------------------------------------------
Net income $ 103,152 $ 117,645 12.3 --
=======================
------------------------------------------------------------------
Diluted earnings per common
share $ .81 $ .90 10.0 --
Dividends declared per
common share $ .43 $ .40
SELECTED FINANCIAL RATIOS:
-------------------------
Return on average assets 1.40% 1.89%
Return on average
shareholders' equity 20.8 25.2
------------------------------------------------------------------
Certain previously reported amounts have been reclassified to
agree with current presentation.
A-2
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Yearly Growth
(Unaudited)
------------------------------------------------------------------
Year-to-date
December 31
-------------------------
Growth
(Thousands) 2004 2003 Rate (%)
------------------------------------------------------------------
Loans, net of unearned
income:
Commercial:
Commercial, financial and
industrial $ 4,845,559 $ 4,304,587 12.6 +
Real estate commercial 959,330 1,056,366 9.2 --
Real estate construction 895,603 632,871 41.5 +
------------------------------------------------------------------
Total commercial loans 6,700,492 5,993,824 11.8 +
Retail:
Real estate residential 7,533,036 5,716,946 31.8 +
Real estate construction 714,608 424,047 68.5 +
Other retail 186,298 259,542 28.2 --
Credit card receivables 250,216 261,959 4.5 --
------------------------------------------------------------------
Total retail loans 8,684,158 6,662,494 30.3 +
------------------------------------------------------------------
Total loans, net of
unearned income 15,384,650 12,656,318 21.6 +
Investment securities 2,449,074 2,374,484 3.1 +
REMIC securities (a) -- 170,376 100.0 --
Loans held for sale 4,179,360 4,420,661 5.5 --
Other earning assets 1,705,235 1,707,039 .1 --
------------------------------------------------------------------
Total earning assets 23,718,319 21,328,878 11.2 +
Cash and due from banks 739,203 748,310 1.2 --
Other assets 2,848,311 3,056,424 6.8 --
------------------------------------------------------------------
Total assets $27,305,833 $25,133,612 8.6 +
=========================
Certificates of deposit
under $100,000 and other
time $ 1,947,025 $ 1,866,283 4.3 +
Other interest-bearing
deposits 4,139,904 3,965,789 4.4 +
------------------------------------------------------------------
Total interest-bearing
core deposits 6,086,929 5,832,072 4.4 +
Demand deposits 1,805,609 2,075,895 13.0 --
Other noninterest-bearing
deposits 2,867,709 3,038,034 5.6 --
------------------------------------------------------------------
Total core deposits 10,760,247 10,946,001 1.7 --
Certificates of deposit
$100,000 and more 6,875,347 5,165,515 33.1 +
------------------------------------------------------------------
Total deposits 17,635,594 16,111,516 9.5 +
Short-term borrowed funds 4,299,283 4,372,631 1.7 --
Term borrowings (a) 2,247,985 1,342,873 67.4 +
Other liabilities 1,217,016 1,383,967 12.1 --
Qualifying capital
securities (a) (b) -- 100,000 100.0 --
Preferred stock of
subsidiary 453 22,196 98.0 --
Shareholders' equity 1,905,502 1,800,429 5.8 +
------------------------------------------------------------------
Total liabilities and
shareholders' equity $27,305,833 $25,133,612 8.6 +
=========================
------------------------------------------------------------------
(a) See page A-9 for additional information on the impact
of certain transactions and new accounting standards.
(b) Guaranteed preferred beneficial interests in FHN's junior
subordinated debentures
Certain previously reported amounts have been reclassified to
agree with current presentation.
A-3
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Quarterly Growth
(Unaudited)
------------------------------------------------------------------
Quarter Ended
December 31
--------------------------
Growth
(Thousands) 2004 2003 Rate (%)
----------------------------------------------------------------
Loans, net of unearned
income:
Commercial:
Commercial, financial
and industrial $ 5,213,599 $ 4,450,241 17.2 +
Real estate commercial 929,707 1,046,936 11.2 --
Real estate
construction 1,132,131 672,885 68.3 +
----------------------------------------------------------------
Total commercial loans 7,275,437 6,170,062 17.9 +
Retail:
Real estate
residential 8,204,466 6,552,587 25.2 +
Real estate
construction 939,823 495,799 89.6 +
Other retail 172,627 239,119 27.8 --
Credit card
receivables 244,095 265,026 7.9 --
----------------------------------------------------------------
Total retail loans 9,561,011 7,552,531 26.6 +
----------------------------------------------------------------
Total loans, net of
unearned income 16,836,448 13,722,593 22.7 +
Investment securities 2,150,573 2,598,988 17.3 --
REMIC securities (a) -- 42,310 100.0 --
Loans held for sale 4,696,065 2,672,566 75.7 +
Other earning assets 1,895,711 1,810,601 4.7 +
----------------------------------------------------------------
Total earning assets 25,578,797 20,847,058 22.7 +
Cash and due from banks 779,235 746,202 4.4 +
Other assets 2,951,866 3,037,276 2.8 --
----------------------------------------------------------------
Total assets $29,309,898 $24,630,536 19.0 +
==========================
Certificates of deposit
under $100,000 and
other time $ 2,065,806 $ 1,855,795 11.3 +
Other interest-bearing
deposits 4,228,402 4,061,369 4.1 +
----------------------------------------------------------------
Total interest-
bearing core
deposits 6,294,208 5,917,164 6.4 +
Demand deposits 1,879,669 2,011,879 6.6 --
Other noninterest-
bearing deposits 3,034,024 2,563,776 18.3 +
----------------------------------------------------------------
Total core deposits 11,207,901 10,492,819 6.8 +
Certificates of deposit
$100,000 and more 8,078,961 5,175,138 56.1 +
----------------------------------------------------------------
Total deposits 19,286,862 15,667,957 23.1 +
Short-term borrowed
funds 4,441,553 4,238,548 4.8 +
Term borrowings (a) 2,385,133 1,551,974 53.7 +
Other liabilities 1,222,697 1,218,434 .3 +
Qualifying capital
securities (a) (b) -- 100,000 100.0 --
Preferred stock of
subsidiary 455 402 13.2 +
Shareholders' equity 1,973,198 1,853,221 6.5 +
----------------------------------------------------------------
Total liabilities and
shareholders' equity $29,309,898 $24,630,536 19.0 +
==========================
----------------------------------------------------------------
(a) See A-9 for additional information on the impact of
certain transactions and new accounting standards.
(b) Guaranteed preferred beneficial interests in FHN's junior
subordinated debentures
Certain previously reported amounts have been reclassified to
agree with current presentation.
A-4
FIRST HORIZON NATIONAL CORPORATION
PERIOD-END STATEMENTS OF CONDITION
(Unaudited)
----------------------------------------------------------------
December 31
-------------------------- Growth
(Thousands) 2004 2003 Rate (%)
----------------------------------------------------------------
Loans, net of unearned
income:
Commercial:
Commercial, financial
and industrial $ 5,560,736 $ 4,502,917 23.5 +
Real estate
commercial 960,178 968,064 .8 --
Real estate
construction 1,208,703 690,402 75.1 +
----------------------------------------------------------------
Total commercial
loans 7,729,617 6,161,383 25.5 +
Retail:
Real estate
residential 7,244,716 6,817,122 6.3 +
Real estate
construction 1,035,562 527,260 96.4 +
Consumer 168,806 212,362 20.5 --
Credit card
receivables 248,972 272,398 8.6 --
----------------------------------------------------------------
Total retail loans 8,698,056 7,829,142 11.1 +
----------------------------------------------------------------
Total loans, net of
unearned income 16,427,673 13,990,525 17.4 +
Investment securities 2,680,997 2,470,370 8.5 +
Loans held for sale 5,167,981 2,977,723 73.6 +
Other earning assets 1,675,654 1,182,488 41.7 +
----------------------------------------------------------------
Total earning assets 25,952,305 20,621,106 25.9 +
Cash and due from banks 638,189 773,294 17.5 --
Other assets 3,180,283 3,112,290 2.2 +
----------------------------------------------------------------
Total assets $29,770,777 $24,506,690 21.5 +
===========================
Certificates of deposit
under $100,000 and
other time $ 2,061,262 $ 1,813,137 13.7 +
Other interest-bearing
deposits 4,510,207 4,022,545 12.1 +
----------------------------------------------------------------
Total interest-
bearing core
deposits 6,571,469 5,835,682 12.6 +
Demand deposits 2,402,602 2,598,596 7.5 --
Other noninterest-
bearing deposits 2,591,920 2,132,968 21.5 +
----------------------------------------------------------------
Total core deposits 11,565,991 10,567,246 9.5 +
Certificates of
deposit $100,000 and
more 8,216,176 5,304,076 54.9 +
----------------------------------------------------------------
Total deposits 19,782,167 15,871,322 24.6 +
Short-term borrowed
funds 3,752,804 3,307,224 13.5 +
Term borrowings (a) 2,616,368 1,726,766 51.5 +
Other liabilities 1,575,160 1,710,608 7.9 --
Preferred stock of
subsidiary 458 452 1.3 +
Shareholders' equity 2,043,820 1,890,318 8.1 +
----------------------------------------------------------------
Total liabilities
and shareholders'
equity $29,770,777 $24,506,690 21.5 +
===========================
----------------------------------------------------------------
(a) See A-9 for additional information on the impact of
certain transactions and new accounting standards.
Certain previously reported amounts have been reclassified to
agree with current presentation.
A-5
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
(Thousands) 4Q04 3Q04 2Q04 1Q04 4Q03
---------------------------------------------------------------------
ALLOWANCE FOR LOAN
LOSSES:
Beginning Reserve $161,856 $160,757 $160,685 $160,333 $161,401
Provision 11,783 10,044 12,292 14,229 15,392
Loans transferred
to held for sale (4,705) (351) (1,239) (2,087) --
Divestiture -- -- -- -- (2,652)
Charge-offs (13,742) (12,497) (14,305) (16,085) (17,279)
Recoveries 2,967 3,903 3,324 4,295 3,471
--------------------------------------------------------------------
Ending Balance $158,159 $161,856 $160,757 $160,685 $160,333
--------------------================================================
Reserve for off-
balance sheet
commitments $ 7,904 $ 8,259 $ 7,883 $ 7,001 $ 7,804
Total of allowance
for loan losses
and reserve for
off-balance sheet
commitments $166,063 $170,115 $168,640 $167,686 $168,137
--------------------------------------------------------------------
NONPERFORMING ASSETS:
Retail/Commercial
Banking:
Nonperforming
loans $ 41,102 $ 45,633 $ 45,671 $ 38,243 $ 43,228
Foreclosed real
estate 24,092 27,428 28,833 25,355 19,365
Other assets -- -- -- 336 336
--------------------------------------------------------------------
Total Retail/
Commercial Banking 65,194 73,061 74,504 63,934 62,929
--------------------------------------------------------------------
Mortgage Banking:
Nonperforming
loans -- held
for sale 8,458 7,279 11,118 9,003 8,556
Foreclosed real
estate 3,686 5,044 4,417 4,523 4,710
--------------------------------------------------------------------
Total Mortgage
Banking 12,144 12,323 15,535 13,526 13,266
--------------------------------------------------------------------
Total
nonperforming
assets $ 77,338 $ 85,384 $ 90,039 $ 77,460 $ 76,195
================================================
Loans and leases
past due 90 days
or more $ 33,804 $ 29,644 $ 25,516 $ 31,167 $ 27,240
Period end loans,
net of unearned
(millions) $ 16,428 $ 16,403 $ 15,301 $ 14,212 $ 13,990
Insured loans 666 560 620 632 863
--------------------------------------------------------------------
Loans excluding
insured loans $ 15,762 $ 15,843 $ 14,681 $ 13,580 $ 13,127
================================================
Off-balance sheet
commitments
(millions)(a) $ 6,226 $ 5,848 $ 5,607 $ 5,294 $ 5,464
--------------------------------------------------------------------
(a) Amount of off-balance sheet commitments for which a reserve has
been provided.
A-6
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
-------------------------------------------------------------------
(Thousands) 4Q04 3Q04 2Q04 1Q04 4Q03
-------------------------------------------------------------------
FHN CONSOLIDATED:
Nonperforming
loans ratio (a) .25% .28% .30% .27% .31%
Nonperforming
assets ratio (b) .42 .48 .51 .48 .48
Allowance to total
loans .96 .99 1.05 1.13 1.15
Allowance to loans
excluding insured
loans 1.00 1.02 1.10 1.18 1.22
Allowance to
nonperforming
loans (c) 384.80 354.69 351.99 420.17 370.90
Allowance to
nonperforming
assets (d) 229.62 207.23 203.69 234.72 237.04
Net charge-off
ratio (e) .26 .22 .30 .34 .40
RETAIL/COMMERCIAL
BANKING:
Nonperforming
assets ratio (b) .40% .44% .49% .45% .45%
Allowance to
nonperforming
assets 242.60 221.54 215.77 251.33 254.78
MORTGAGE BANKING:
Nonperforming
assets ratio (f) .01% .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 net charge-offs to average total loans
(f) Ratio is nonperforming assets to unpaid principal balance of
servicing portfolio
A-7
FIRST HORIZON NATIONAL CORPORATION
BUSINESS SEGMENT HIGHLIGHTS
(Unaudited)
--------------------------------------------------------------------
(Thousands) 4Q04 3Q04 2Q04 1Q04 4Q03
--------------------------------------------------------------------
RETAIL/COMMERCIAL
BANKING
Total Revenues $324,551 $294,960 $288,841 $274,084 $288,886
Loan Loss Provision 11,798 10,044 12,310 14,249 15,333
Noninterest
Expenses 191,551 180,250 177,235 172,224 186,280
------------------------------------------------
Pre-Tax Income $121,202 $104,666 $ 99,296 $ 87,611 $ 87,273
Taxes 36,559 33,665 25,990 27,219 31,953
------------------------------------------------
Net Income $ 84,643 $ 71,001 $ 73,306 $ 60,392 $ 55,320
MORTGAGE BANKING
Total Revenues $140,708 $146,984 $167,409 $163,242 $162,840
Loan Loss Provision (15) -- (18) (20) 59
Noninterest
Expenses 110,736 109,255 118,711 99,664 95,020
------------------------------------------------
Pre-Tax Income $ 29,987 $ 37,729 $ 48,716 $ 63,598 $ 67,761
Taxes 10,748 13,716 17,766 23,368 25,870
------------------------------------------------
Net Income $ 19,239 $ 24,013 $ 30,950 $ 40,230 $ 41,891
CAPITAL MARKETS
Total Revenues $ 79,959 $ 81,562 $103,004 $119,564 $120,633
Noninterest
Expenses 69,527 64,640 77,945 88,806 84,879
------------------------------------------------
Pre-Tax Income $ 10,432 $ 16,922 $ 25,059 $ 30,758 $ 35,754
Taxes 3,373 6,293 9,455 11,776 13,107
------------------------------------------------
Net Income $ 7,059 $ 10,629 $ 15,604 $ 18,982 $ 22,647
CORPORATE
Total Revenues $ (3,624) $ 22,358 $ 6,651 $ 9,244 $ 10,641
Noninterest
Expenses 10,874 11,451 10,189 11,282 15,825
------------------------------------------------
Pre-Tax Income $(14,498) $ 10,907 $ (3,538) $ (2,038) $ (5,184)
Taxes (6,709) 2,949 (2,062) (1,705) (2,971)
------------------------------------------------
Net Income $ (7,789) $ 7,958 $ (1,476) $ (333) $ (2,213)
TOTAL CONSOLIDATED
Total Revenues $541,594 $545,864 $565,905 $566,134 $583,000
Loan Loss Provision 11,783 10,044 12,292 14,229 15,392
Total Noninterest
Expenses 382,688 365,596 384,080 371,976 382,004
------------------------------------------------
Consolidated Pretax
Income $147,123 $170,224 $169,533 $179,929 $185,604
Taxes 43,971 56,623 51,149 60,658 67,959
------------------------------------------------
Net Income $103,152 $113,601 $118,384 $119,271 $117,645
--------------------------------------------------------------------
See page A-9 for discussion of changes to FHN's business segments.
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-8
FIRST HORIZON NATIONAL CORPORATION
OTHER HIGHLIGHTS
(Unaudited)
Balance Sheet:
In prior years, FHN has securitized certain real estate loans
through a real estate mortgage investment conduit (REMIC) and
retained all of the securitized assets. The retained assets were
classified on the Consolidated Statements of Condition in
"Securities held to maturity". During fourth quarter 2003, FHN
elected to purchase all of the mortgage loans remaining in the
REMIC ($136.3 million at repurchase). Subsequent to the
repurchase of the mortgage loans, these assets are classified as
retail real estate residential loans.
Effective December 31, 2003, FHN adopted FASB Interpretation No.
46, "Consolidation of Variable Interest Entities", and
deconsolidated its subsidiary, First Tennessee Capital I (Capital
I), which has issued $100.0 million of capital securities that
are fully and unconditionally guaranteed by FHN. As a result of
this deconsolidation the capital securities are no longer
included on FHN's balance sheet. However, $103.0 million of
junior subordinated debentures issued by FHN to Capital I are no
longer eliminated in consolidation and appear in term borrowings
as of December 31, 2003.
On December 31, 2003, FHN completed the sale of substantially all
of the assets and liabilities of its wholly owned subsidiary,
First National Bank of Springdale (FNB) of Springdale, Arkansas
to First Security Bank of Searcy, Arkansas. This transaction
resulted in a divestiture gain of $12.5 million. Immediately
preceding the sale, FNB had investment securities of
approximately $125 million, loans of approximately $165 million,
deposits of approximately $300 million and equity of
approximately $40 million.
Segments:
FHN has adapted its segments to reflect the common activities
and operations of aggregated business segments across the various
delivery channels. Prior periods have been restated for
comparability. The new segments are Retail/Commercial Banking,
Mortgage Banking, Capital Markets and Corporate. The
Retail/Commercial Banking segment consists of Retail/Commercial
Banking including traditional lending and deposit taking for
retail and commercial customers. Additionally, the
Retail/Commercial Bank provides Investments, Insurance, Financial
Planning, Trust Services and Asset Management, Credit Card, Cash
Management, Merchant Services, Check Clearing, and Correspondent
Services. Retail/Commercial Banking now includes Equity Lending
and held to maturity mortgage and construction loans originated
by First Horizon Home Loans which were previously in the mortgage
segment and Correspondent Banking which was previously in Capital
Markets. The Mortgage Banking segment consists of core mortgage
banking elements including Originations and Servicing and the
associated ancillary revenues related to these businesses. The
Capital Markets segment consists of traditional capital markets
trading activities, Equity Research and Investment Banking. The
Corporate segment consists of unallocated corporate expenses,
expense on certain subordinated debt issuances and certain
preferred stock, bank owned life insurance, unallocated interest
income associated with excess capital, Funds Management and
Venture Capital.
A-9