-- Retail/Commercial Banking pre-tax income increased 17 percent
to $115.7 million
-- Mortgage Banking earnings were impacted by increased impairment
and the timing of revenue recognition
-- A flatter yield curve unfavorably impacted net interest margin
and the demand for fixed income securities
-- Commercial loans grew 31 percent over second quarter 2004
-- Retail loans grew 11 percent over second quarter 2004
-- Retail/Commercial Banking deposits grew 12 percent over second
quarter 2004 to $10.6 billion
-- Net charge-off ratio decreased to 23 basis points from 30
basis points last year
-- Home purchase-related originations grew 28 percent and
represented 63 percent of total originations
-- Capital markets fee income from other products grew 10 percent
over second quarter 2004
MEMPHIS, Tenn., July 18, 2005 (PRIMEZONE) -- First Horizon National Corporation (NYSE:FHN) announced earnings of $102.7 million, or $.80 diluted earnings per share for second quarter 2005. This compares to 2004's second quarter earnings of $118.4 million, or $.92 diluted earnings per share. For the six months ended June 30, 2005, earnings were $211.9 million or $1.65 diluted earnings per share, compared to $237.7 million or $1.84 diluted earnings per share for 2004.
Second quarter 2004 earnings included the adoption of SAB No. 105, which prohibited the inclusion of estimated servicing cash flows within the valuation of interest rate lock commitments. Prior to that time, FHN included a portion of the value of the associated servicing cash flows when recognizing loan commitments at inception and throughout their lives. The adoption of SAB No. 105 created an accounting change in second quarter 2004 and lowered earnings by $8.4 million and diluted earnings per share by $0.04. While this impact was a one-time change and doesn't affect the ongoing economic value of the business, it can create quarterly volatility due to the timing of revenue recognition as experienced this quarter.
"With the exception of a timing issue related to mortgage revenue, second quarter came in basically flat to first quarter 2005 and in line with our expectations given the recent developments in the operating environment," said Ken Glass, Chairman and CEO. "The positive financial impact of the pick-up in mortgage originations due to higher refinance activity in the overall market will be felt in the third quarter while the related increase in impairment expense hit us in second quarter."
Glass continued, "Our fundamentals are strong, and we continue to make good strategic progress. The second half of 2005 should show growth over last year as earnings enhancements are implemented to offset the impact of today's flatter yield curve environment."
Return on average shareholders' equity and return on average assets were 19.6 percent and 1.14 percent, respectively, for second quarter 2005 compared to 25.5 percent and 1.75 percent for second quarter 2004. For the six months ended June 30, 2005, return on average shareholders' equity and return on average assets were 20.7 percent and 1.21 percent, respectively, compared to 25.5 percent and 1.83 percent for the same period in 2004.
Total assets were $37.2 billion and shareholders' equity was $2.2 billion on June 30, 2005, compared to $27.3 billion and $1.9 billion, respectively, on June 30, 2004.
PERFORMANCE HIGHLIGHTS
Retail/Commercial Banking
Pre-tax income for Retail/Commercial Banking increased 17 percent to $115.7 million for second quarter 2005, compared to $99.3 million for second quarter 2004. Retail/Commercial Banking contributed 77 percent of total pre-tax income in second quarter 2005 compared to 59 percent in second quarter 2004. Total revenues increased 16 percent to $334.5 million for second quarter 2005 compared to $288.7 million for second quarter 2004.
Net interest income increased 26 percent to $211.4 million in second quarter 2005 from $167.3 million in second quarter 2004. The increase in 2005's net interest income is primarily attributable to 20 percent total loan growth with commercial loans growing 31 percent to $8.5 billion from $6.5 billion and retail loans growing 11 percent to $9.3 billion from $8.3 billion. This growth resulted from expansion of the sales force which increased market share in the core bank, as well as cross-sell opportunities in FHN's national markets where we have a substantial mortgage presence. Total deposits increased 12 percent or $1.1 billion over second quarter 2004. Retail/Commercial Banking's net interest margin for second quarter 2005 was held stable compared to second quarter 2004 by minimizing loan rate spread compression caused by competitive pricing while successfully increasing spreads on deposits in conjunction with fed rate increases.
Noninterest income remained relatively flat at $123.1 million in second quarter 2005 compared to $121.4 million in second quarter 2004. Second quarter 2005 noninterest income included $8.4 million net revenue from sales and securitizations of real estate residential loans. This was reduced by $5.2 million resulting from a write-off of the net capitalized expenses on HELOC's held for sale that prepaid faster than anticipated. In second quarter 2004, noninterest income included revenue from loan sales and securitizations of $4.0 million. Merchant processing income increased 20 percent in second quarter 2005, or $3.8 million, reflecting increased volume from existing customers as well as an expanded customer base.
The provision for loan losses increased to $15.6 million in second quarter 2005 from $12.3 million last year as the loan portfolio has grown by 20 percent since second quarter 2004. During this time net charge-offs decreased to $10.3 million from $11.0 million. However, the ratio of allowance to total loans continued to decline as the risk profile of both the retail and commercial loan portfolios improved. The risk profile of the retail loan portfolio improved as the mix shifted to a greater concentration of high credit score products. The risk profile of the commercial loan portfolio improved as indicated by current lower levels of total watch and classified loans.
Noninterest expense was $203.2 million in second quarter 2005 compared to $177.1 million last year. The growth in noninterest expense was due to higher personnel and advertising costs which were largely attributable to national expansion initiatives. As total revenue grew 16 percent and noninterest expense grew 15 percent, the efficiency ratio improved to 60.7 percent in second quarter 2005 from 61.4 percent in second quarter 2004.
Mortgage Banking
Pre-tax income for Mortgage Banking decreased 22 percent to $38.0 million for second quarter 2005, compared to $48.8 million for second quarter 2004. Total revenues were $155.4 million in second quarter 2005, a decrease of 7 percent from $167.5 million in second quarter 2004.
Net interest income decreased 15 percent to $37.7 million in second quarter 2005 from $44.4 million in second quarter 2004 as the flattening of the yield curve resulted in compression of the spread on the warehouse. Spread on the warehouse was 2.66 percent in second quarter 2005 compared to 3.84 percent for the same period in 2004.
Noninterest income decreased 4 percent to $117.7 million in second quarter 2005 compared to $123.1 million in second quarter 2004. 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 is net of amortization, impairment and other expenses related to MSR and related hedges.
Mortgage loan origination volumes in second quarter 2005 were $9.5 billion compared to $8.9 billion in 2004 driven by an increase in home purchase related originations, which grew 28 percent from second quarter 2004. This increase demonstrates FHN's success in executing its strategy to grow the purchase market and was the result of an expanded sales force which increased 20 percent and includes almost 2,000 relationship managers today. Refinance activity represented 37 percent of total originations during second quarter 2005 compared to 47 percent last year. Loans delivered into the secondary market decreased 8 percent to $8.7 billion. Net revenue from mortgage loans sold decreased 3 percent to $95.6 million from $99.1 million in second quarter 2004. Reflecting strong origination performance in the latter part of the quarter the warehouse and pipeline of mortgage products increased $.8 billion and $1.6 billion, respectively over second quarter 2004.
The mortgage-servicing portfolio grew 26 percent to $90.8 billion on June 30, 2005, from $72.2 billion on June 30, 2004, including approximately $11 billion of loans for which the servicing rights were acquired in 2004. Total fees associated with mortgage servicing increased 28 percent to $68.4 million reflecting this growth. In addition, the growth in the servicing portfolio and rising interest rates led to an 18 percent increase in capitalized mortgage servicing rights and an 18 percent, or $6.8 million, increase in amortization expense compared to second quarter 2004. The total $8.1 million decrease in net servicing revenues consists of these and several other factors, including an unfavorable $23.9 million impact from MSR impairment charges. This unfavorable variance is primarily a result of a $15.4 million reduction in impairment in second quarter 2004 resulting from the restratification of the servicing portfolio tranches due to the impact that rising interest rates had on the predominant risk characteristics of the MSR portfolio at that time. In addition, net servicing revenues were impacted by an increase of $7.8 million in net hedge gains.
Noninterest expense remained stable at $117.2 million in second quarter 2005 compared to $118.7 million in second quarter 2004 as expense efficiencies were offset by the increased production.
Capital Markets
Pre-tax earnings declined from $25.0 million in second quarter 2004 to $6.9 million in second quarter 2005 due to a reduction in fixed income securities sales to depository customers, net of a related decline in commissions and incentives, and a decrease in net interest income. Significant uncertainties within the investment community regarding interest rates and other economic factors continue to cause fixed income investors to reduce their purchases. Total revenues were $89.6 million in second quarter 2005, a decrease of 13 percent from $103.0 million in second quarter 2004.
Revenues from fixed income sales to depository investors fell $12.4 million while non-depository revenues increased $5.0 million or 21 percent. Non-depository revenues increased to 29 percent of total noninterest income in second quarter 2005 from 23 percent in second quarter 2004, primarily as a result of the acquisition of the fixed income business of Spear, Leeds and Kellogg (SLK) in first quarter 2005. Revenues from other fee sources include fee income from activities such as loan sales, investment banking, equity research, portfolio advisory and the sale of bank-owned life insurance. Revenue from other fee sources represented 49 percent of total noninterest income in second quarter 2005 compared to 43 percent in second quarter 2004 and increased 10 percent to $49.5 million from $44.8 million, primarily due to increased fees from loan sales.
Net interest income decreased $10.7 million primarily due to the flattening of the yield curve, resulting in compression of the spread on capital markets securities inventory, and due to an incremental equity charge of $4.6 million related to the capital requirements of the SLK acquisition.
Noninterest expense increased 6 percent or $4.7 million, primarily due to increased costs resulting from the acquisition of SLK.
Corporate
The Corporate segment's results yielded a pre-tax loss of $10.5 million in second quarter 2005 compared to a pre-tax loss of $3.5 million in second quarter 2004. The second quarter 2005 results include $3.6 million dividend expense on $300 million of noncumulative perpetual preferred stock issued in first quarter 2005, while the second quarter 2004 results include $2.9 million in security gains due to portfolio restructurings and venture capital gains.
AVERAGE BALANCE SHEET
Total average assets increased 33 percent to $36.3 billion for second quarter 2005. Total loans increased 20 percent to $17.8 billion as commercial loans grew 31 percent and retail loans increased 11 percent. Loans held for sale increased 29 percent to $6.1 billion. Interest-bearing core deposits increased 13 percent. Total core deposits increased 10 percent to $12.0 billion, reflecting expansion strategies which emphasize a focus on convenient hours, free checking and targeted financial center expansion. Purchased funds increased 65 percent to $17.8 billion. Average shareholders' equity increased 12 percent in second quarter 2005.
The consolidated net interest margin was 3.06 percent for second quarter 2005 compared to 3.63 percent for second quarter 2004. This compression in the margin occurred as the spread decreased to 2.66 percent in 2005 from 3.38 percent in 2004 while average earning assets increased 34 percent and net interest income increased only 13 percent. Capital markets activities tend to compress the margin because of its strategy to reduce market risk by hedging its inventory in the cash markets, which reduces the term and accordingly the interest income earned on these transactions. The SLK acquisition increased this unfavorable impact on the corporate margin compared to last year as capital markets' balance sheet grew $3.7 billion. In addition, the mortgage warehouse negatively impacted the margin this quarter as the spread decreased 118 basis points to 2.66 percent, and the volume grew 6 percent from 2004.
ASSET QUALITY
Continuing last year's trend, FHN's key asset quality ratios improved in second quarter 2005. The net charge-off ratio was 23 basis points in second quarter 2005 compared to 30 basis points in second quarter 2004 as net charge-offs decreased to $10.3 million from $11.0 million. Net charge-offs were impacted in second quarter 2005 by improvement in the consumer loan portfolios. The nonperforming assets ratio was 36 basis points in second quarter 2005 compared to 51 basis points last year with nonperforming assets of $77.5 million on June 30, 2005, compared to $90.0 million on June 30, 2004. Provision for loan losses was $15.8 million in second quarter 2005 compared to $12.3 million in second quarter 2004. 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. (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).
OUTLOOK
"The continued execution of our strategic initiatives, the implementation of earnings enhancements to overcome the loss of earnings related to today's flatter yield curve environment, and the realization of earnings in the current mortgage pipeline should enable earnings per share growth to resume this year," said Chief Financial Officer Marty Mosby. "As we have discussed over the years and as was highlighted in the second quarter, a further flattening in the yield curve could unfavorably impact our earnings. We will continue to monitor these trends and develop our business plans accordingly."
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, 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 Monday, July 18, 2005, 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 July 18, 2005, at 1-800-289-0743 (international participants dial 1-913-981-5546). 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/fhnc/medialist.cfm. A replay of the call will be available from 11 a.m. Central Time July 18, 2005, until 11 p.m. Monday, August 1, 2005, by calling (888) 203-1112 or (719) 457-0820 for international participants. The passcode is 1632412. The event will be archived and made available by 1 p.m. Central Time July 18, 2005, on FHN's Web site at www.fhnc.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 13,000 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 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
June 30
--------------
Growth
(Thousands) 2005 2004 Rate (%)
---------------------------------------------------------------------
Interest income $ 823,261 $ 531,830 54.8 +
Less interest
expense 354,206 122,215 189.8 +
---------------------------------------------------------------------
Net interest
income 469,055 409,615 14.5 +
Provision for
loan losses 28,895 26,521 9.0 +
---------------------------------------------------------------------
Net interest
income after
provision for
loan losses 440,160 383,094 14.9 +
Noninterest income:
Mortgage banking 227,755 244,832 7.0 --
Capital markets 189,951 220,123 13.7 --
Deposit transactions
and cash management 72,726 72,195 .7 +
Merchant processing 43,699 36,108 21.0 +
Insurance commissions 28,274 30,498 7.3 --
Trust services
and investment
management 22,442 23,695 5.3 --
Gains on divestitures - 3,800 NM
Securities gains, net 9 4,099 NM
Other 101,929 87,074 17.1 +
---------------------------------------------------------------------
Total noninterest
income 686,785 722,424 4.9 --
---------------------------------------------------------------------
Adjusted gross
income after
provision for
loan losses 1,126,945 1,105,518 1.9 +
Noninterest expense:
Employee compensation,
incentives and benefits 491,050 476,652 3.0 +
Occupancy 51,064 42,662 19.7 +
Equipment rentals,
depreciation,
and maintenance 37,491 35,349 6.1 +
Operations services 38,805 31,343 23.8 +
Communications and
courier 26,577 25,026 6.2 +
Amortization of
intangible assets 6,722 4,362 54.1 +
Other 162,177 140,662 15.3 +
---------------------------------------------------------------------
Total noninterest
expense 813,886 756,056 7.6 +
---------------------------------------------------------------------
Pre-tax income 313,059 349,462 10.4 --
Provision for
income taxes 101,145 111,807 9.5 --
---------------------------------------------------------------------
Net income $ 211,914 $ 237,655 10.8 --
=======================
---------------------------------------------------------------------
Diluted earnings per
common share $ 1.65 $ 1.84 10.3 --
Dividends declared $ .86 $ .80
SELECTED FINANCIAL RATIOS:
--------------------------
Return on average assets 1.21% 1.83%
Return on average
shareholders' equity 20.7 25.5
---------------------------------------------------------------------
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
June 30
---------------
Growth
(Thousands) 2005 2004 Rate (%)
---------------------------------------------------------------------
Interest income $ 438,385 $ 277,815 57.8 +
Less interest expense 196,777 64,209 206.5 +
---------------------------------------------------------------------
Net interest income 241,608 213,606 13.1 +
Provision for loan losses 15,786 12,292 28.4 +
---------------------------------------------------------------------
Net interest income
after provision for
loan losses 225,822 201,314 12.2 +
Noninterest income:
Mortgage banking 108,993 118,266 7.8 --
Capital markets 94,789 102,195 7.2 --
Deposit transactions
and cash management 39,471 38,234 3.2 +
Merchant processing 23,239 19,365 20.0 +
Insurance commissions 13,525 14,104 4.1 --
Trust services and
investment management 11,278 11,891 5.2 --
Gains on divestitures - 1,800 NM
Securities gains, net 75 3,214 NM
Other 52,017 43,230 20.3 +
---------------------------------------------------------------------
Total noninterest income 343,387 352,299 2.5 --
---------------------------------------------------------------------
Adjusted gross income
after provision
for loan losses 569,209 553,613 2.8 +
Noninterest expense:
Employee compensation,
incentives and benefits 248,064 238,402 4.1 +
Occupancy 26,548 21,699 22.3 +
Equipment rentals,
depreciation, and
maintenance 19,406 17,573 10.4 +
Operations services 20,328 15,944 27.5 +
Communications
and courier 13,684 13,223 3.5 +
Amortization
of intangible
assets 3,360 2,191 53.4 +
Other 87,641 75,048 16.8 +
---------------------------------------------------------------------
Total noninterest
expense 419,031 384,080 9.1 +
---------------------------------------------------------------------
Pre-Tax income 150,178 169,533 11.4 --
Provision for
income taxes 47,473 51,149 7.2 --
---------------------------------------------------------------------
Net income $ 102,705 $ 118,384 13.2 --
========================
---------------------------------------------------------------------
Diluted earnings
per common share $ .80 $ .92 13.0 --
Dividends declared
per common share $ .43 $ .40
SELECTED FINANCIAL RATIOS:
-------------------------
Return on average assets 1.14% 1.75%
Return on average
shareholders' equity 19.6 25.5
---------------------------------------------------------------------
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
June 30
------------
Growth
(Thousands) 2005 2004 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial,
financial and industrial $ 5,688,417 $ 4,614,054 23.3 +
Real estate commercial 1,045,671 973,859 7.4 +
Real estate construction 1,426,739 751,113 89.9 +
---------------------------------------------------------------------
Total commercial loans 8,160,827 6,339,026 28.7 +
Retail:
Real estate residential 7,460,067 7,032,102 6.1 +
Real estate construction 1,213,911 584,823 107.6 +
Other retail 160,880 196,374 18.1 --
Credit card receivables 238,808 258,849 7.7 --
---------------------------------------------------------------------
Total retail loans 9,073,666 8,072,148 12.4 +
---------------------------------------------------------------------
Total loans, net of
unearned income 17,234,493 14,411,174 19.6 +
Investment securities 2,863,440 2,510,673 14.1 +
Loans held for sale 5,687,570 3,990,276 42.5 +
Other earning assets 4,713,909 1,617,853 191.4 +
---------------------------------------------------------------------
Total earning assets 30,499,412 22,529,976 35.4 +
Cash and due from banks 728,609 718,575 1.4 +
Other assets 3,964,853 2,836,594 39.8 +
---------------------------------------------------------------------
Total assets $35,192,874 $26,085,145 34.9 +
=========================
Certificates of deposit
under $100,000 and
other time $ 2,143,558 $ 1,852,607 15.7 +
Other interest-bearing
deposits 4,590,992 4,100,884 12.0 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 6,734,550 5,953,491 13.1 +
Demand deposits 1,810,430 1,800,507 .6 +
Other noninterest-bearing
deposits 3,167,695 2,817,573 12.4 +
---------------------------------------------------------------------
Total core deposits 11,712,675 10,571,571 10.8 +
Certificates of
deposit $100,000
and more 10,353,328 6,218,514 66.5 +
---------------------------------------------------------------------
Total deposits 22,066,003 16,790,085 31.4 +
Short-term borrowed funds 6,699,227 4,140,660 61.8 +
Term borrowings 2,600,614 2,131,862 22.0 +
Other liabilities 1,595,881 1,150,794 38.7 +
Preferred stock of
subsidiary 163,448 451 NM
Shareholders' equity 2,067,701 1,871,293 10.5 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $35,192,874 $26,085,145 34.9 +
=========================
---------------------------------------------------------------------
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
June 30
---------------
Growth
(Thousands) 2005 2004 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial
and industrial $ 5,894,439 $ 4,736,562 24.4 +
Real estate commercial 1,086,327 965,102 12.6 +
Real estate construction 1,546,171 796,616 94.1 +
---------------------------------------------------------------------
Total commercial loans 8,526,937 6,498,280 31.2 +
Retail:
Real estate residential 7,533,472 7,253,653 3.9 +
Real estate construction 1,321,238 619,141 113.4 +
Other retail 161,073 188,705 14.6 --
Credit card receivables 239,542 258,362 7.3 --
---------------------------------------------------------------------
Total retail loans 9,255,325 8,319,861 11.2 +
---------------------------------------------------------------------
Total loans, net of
unearned income 17,782,262 14,818,141 20.0 +
Investment securities 2,931,319 2,474,597 18.5 +
Loans held for sale 6,055,933 4,689,674 29.1 +
Other earning assets 4,849,702 1,658,019 192.5 +
---------------------------------------------------------------------
Total earning assets 31,619,216 23,640,431 33.8 +
Cash and due from banks 727,429 718,411 1.3 +
Other assets 3,935,557 2,917,438 34.9 +
---------------------------------------------------------------------
Total assets $36,282,202 $27,276,280 33.0 +
===========================
---------------------------------------------------------------------
Certificates of deposit
under $100,000 and other
time $ 2,184,264 $ 1,880,652 16.1 +
Other interest-bearing
deposits 4,613,876 4,146,669 11.3 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 6,798,140 6,027,321 12.8 +
Demand deposits 1,835,618 1,809,131 1.5 +
Other noninterest-bearing
deposits 3,331,828 3,090,992 7.8 +
---------------------------------------------------------------------
Total core deposits 11,965,586 10,927,444 9.5 +
Certificates of deposit
$100,000 and more 10,557,321 6,580,741 60.4 +
---------------------------------------------------------------------
Total deposits 22,522,907 17,508,185 28.6 +
Short-term borrowed funds 7,239,754 4,222,929 71.4 +
Term borrowings 2,585,246 2,441,962 5.9 +
Other liabilities 1,539,171 1,231,820 25.0 +
Preferred stock of
subsidiary 295,432 452 NM
Shareholders' equity 2,099,692 1,870,932 12.2 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $36,282,202 $27,276,280 33.0 +
===========================
---------------------------------------------------------------------
A-4
FIRST HORIZON NATIONAL CORPORATION
PERIOD-END STATEMENTS OF CONDITION
(Unaudited)
June 30
-----------
Growth
(Thousands) 2005 2004 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial
and industrial $ 6,181,638 $ 4,868,903 27.0 +
Real estate commercial 1,128,164 960,026 17.5 +
Real estate construction 1,662,777 853,099 94.9 +
---------------------------------------------------------------------
Total commercial loans 8,972,579 6,682,028 34.3 +
Retail:
Real estate residential 7,549,881 7,524,369 .3 +
Real estate construction 1,499,452 672,802 122.9 +
Other retail 163,848 183,476 10.7 --
Credit card receivables 242,841 238,792 1.7 +
---------------------------------------------------------------------
Total retail loans 9,456,022 8,619,439 9.7 +
---------------------------------------------------------------------
Total loans, net of
unearned income 18,428,601 15,301,467 20.4 +
Investment securities 2,998,495 2,410,814 24.4 +
Loans held for sale 5,795,436 3,446,442 68.2 +
Other earning assets 3,980,666 1,708,026 133.1 +
---------------------------------------------------------------------
Total earning assets 31,203,198 22,866,749 36.5 +
Cash and due from banks 989,903 834,549 18.6 +
Other assets 4,972,688 3,588,401 38.6 +
---------------------------------------------------------------------
Total assets $37,165,789 $27,289,699 36.2 +
===========================
---------------------------------------------------------------------
Certificates of deposit
under $100,000 and other
time $ 2,223,519 $ 1,962,522 13.3 +
Other interest-bearing
deposits 4,522,124 4,086,146 10.7 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 6,745,643 6,048,668 11.5 +
Demand deposits 2,660,761 2,388,748 11.4 +
Other noninterest-bearing
deposits 3,288,812 2,484,075 32.4 +
---------------------------------------------------------------------
Total core deposits 12,695,216 10,921,491 16.2 +
Certificates of deposit
$100,000 and more 8,962,649 4,989,021 79.6 +
---------------------------------------------------------------------
Total deposits 21,657,865 15,910,512 36.1 +
Short-term borrowed funds 7,823,562 4,915,526 59.2 +
Term borrowings 2,537,046 2,381,297 6.5 +
Other liabilities 2,668,713 2,161,233 23.5 +
Preferred stock of
subsidiary 295,275 454 NM
Shareholders' equity 2,183,328 1,920,677 13.7 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $37,165,789 $27,289,699 36.2 +
===========================
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-5
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
(Thousands) 2Q05 1Q05 4Q04 3Q04 2Q04
---------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Beginning
Reserve $164,195 $158,159 $161,856 $160,757 $160,685
Provision 15,786 13,109 11,783 10,044 12,292
Transfers
to held
for sale - - (4,705) (351) (1,239)
Charge-offs (13,642) (11,022) (13,742) (12,497) (14,305)
Recoveries 3,358 3,949 2,967 3,903 3,324
---------------------------------------------------------------------
Ending
Balance $169,697 $164,195 $158,159 $161,856 $160,757
-----------------====================================================
Reserve for
off-balance
sheet
commitments $ 8,515 $ 8,212 $ 7,904 $ 8,259 $ 7,883
Total of
allowance for loan
losses and reserve
for off-balance
sheet
commitments $178,212 $172,407 $166,063 $170,115 $168,640
---------------------------------------------------------------------
NONPERFORMING ASSETS:
Retail/Commercial Banking:
Nonperforming
loans $ 39,792 $ 40,160 $ 41,102 $ 45,633 $ 45,671
Foreclosed
real estate 18,647 17,958 19,247 22,582 23,987
---------------------------------------------------------------------
Total Retail/
Commercial
Banking 58,439 58,118 60,349 68,215 69,658
---------------------------------------------------------------------
Mortgage Banking:
Nonperforming
loans - held
for sale 10,550 9,264 8,458 7,279 11,118
Foreclosed
real estate 8,490 7,737 8,531 9,890 9,263
---------------------------------------------------------------------
Total Mortgage
Banking 19,040 17,001 16,989 17,169 20,381
---------------------------------------------------------------------
Total
nonperforming
assets $ 77,479 $ 75,119 $ 77,338 $ 85,384 $ 90,039
====================================================
Loans past
due 90
days
or more $189,090 $206,424 $213,596 $212,216 $202,167
Guaranteed
portion of
loans past
due 90
days or more 165,216 181,666 185,353 188,213 182,410
Period-end
loans, net
of unearned
(millions) $ 18,429 $ 17,184 $ 16,428 $ 16,403 $ 15,301
Insured loans 831 801 666 560 620
---------------------------------------------------------------------
Loans
excluding
insured loans $ 17,598 $ 16,383 $ 15,762 $ 15,843 $ 14,681
===================================================
Off-balance sheet
commitments
(millions)(a) $ 6,871 $ 6,465 $ 6,226 $ 5,848 $ 5,607
---------------------------------------------------------------------
(a) 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-6
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
(Thousands) 2Q05 1Q05 4Q04 3Q04 2Q04
---------------------------------------------------------------------
FHN CONSOLIDATED:
Nonperforming
loans ratio (a) .22% .23% .25% .28% .30%
Nonperforming
assets ratio (b) .36 .38 .42 .48 .51
Allowance to
total loans .92 .96 .96 .99 1.05
Allowance to
loans excluding
insured loans .96 1.00 1.00 1.02 1.10
Allowance to
nonperforming
loans (c) 426.46 408.85 384.80 354.69 351.99
Allowance to
nonperforming
assets (d) 253.55 249.33 229.62 207.23 203.69
Net charge-off
ratio (e) .23 .17 .26 .22 .30
RETAIL/COMMERCIAL
BANKING:
Nonperforming
assets ratio (b) .32% .34% .37% .42% .45%
Allowance to
nonperforming
assets 290.38 282.52 262.07 237.27 230.78
MORTGAGE BANKING:
Nonperforming
assets ratio (f) .02% .02% .02% .02% .03%
---------------------------------------------------------------------
(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-7
FIRST HORIZON NATIONAL CORPORATION
BUSINESS SEGMENT HIGHLIGHTS
(Unaudited)
(Thousands) 2Q05 1Q05 4Q04 3Q04 2Q04
---------------------------------------------------------------------
RETAIL/COMMERCIAL
BANKING
Total revenues $334,574 $319,287 $324,551 $294,960 $288,841
Provision for
loan losses 15,667 13,069 11,798 10,044 12,310
Noninterest
expenses 203,218 188,798 191,551 180,250 177,235
------------------------------------------------
Pre-tax income $115,689 $117,420 $121,202 $104,666 $ 99,296
Provision for
income taxes 37,074 37,801 36,559 33,665 25,990
------------------------------------------------
Net income $ 78,615 $ 79,619 $ 84,643 $ 71,001 $ 73,306
MORTGAGE BANKING
Total revenues $155,341 $155,532 $140,708 $146,984 $167,409
Provision for
loan losses 119 40 (15) -- (18)
Noninterest
expenses 117,150 112,702 110,736 109,255 118,711
------------------------------------------------
Pre-tax income $ 38,072 $ 42,790 $ 29,987 $ 37,729 $ 48,716
Provision for
income taxes 13,608 15,346 10,748 13,716 17,766
------------------------------------------------
Net income $ 24,464 $ 27,444 $ 19,239 $ 24,013 $ 30,950
CAPITAL MARKETS
Total revenues $ 89,585 $ 90,607 $ 79,959 $ 81,562 $103,004
Noninterest
expenses 82,679 81,537 69,527 64,640 77,945
------------------------------------------------
Pre-tax income $ 6,906 $ 9,070 $ 10,432 $ 16,922 $ 25,059
Provision for
income taxes 1,727 3,928 3,373 6,293 9,455
------------------------------------------------
Net income $ 5,179 $ 5,142 $ 7,059 $ 10,629 $ 15,604
CORPORATE
Total revenues/
(expenses) $ 5,495 $ 5,419 $ (3,624) $ 22,358 $ 6,651
Noninterest
expenses 15,984 11,818 10,874 11,451 10,189
------------------------------------------------
Pre-tax (loss)/
income $(10,489) $ (6,399) $(14,498) $ 10,907 $ (3,538)
Provision for
(income tax
benefit)/income
taxes (4,936) (3,403) (6,709) 2,949 (2,062)
------------------------------------------------
Net (loss)/income $ (5,553) $ (2,996) $ (7,789) $ 7,958 $ (1,476)
TOTAL CONSOLIDATED
Total revenues $584,995 $570,845 $541,594 $545,864 $565,905
Provision for loan
losses 15,786 13,109 11,783 10,044 12,292
Total noninterest
expenses 419,031 394,855 382,688 365,596 384,080
------------------------------------------------
Consolidated pre-tax
income $150,178 $162,881 $147,123 $170,224 $169,533
Provision for income
taxes 47,473 53,672 43,971 56,623 51,149
------------------------------------------------
Net income $102,705 $109,209 $103,152 $113,601 $118,384
================================================
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-8