MEMPHIS, Tenn., Jan. 17, 2007 (PRIME NEWSWIRE) -- First Horizon National Corporation (NYSE:FHN) announced fourth quarter 2006 earnings of $76.5 million or $.60 diluted earnings per share compared to $105.9 million or $.81 diluted earnings per share for fourth quarter 2005. Results for fourth quarter 2006 continue to reflect the negative impact of the interest rate environment and housing slow-down on the mortgage segment.
Highlights this quarter include continued growth in Capital Markets' "other product" revenues compared to fourth quarter 2005. Mortgage Banking returned to profitability this quarter as pre-tax income improved to $3.5 million reflecting improved margins on loans sold and an aggressive right-sizing of the origination support costs. Retail/Commercial Banking loan and deposit products continued to grow while asset quality remained solid reflecting geographic diversity and strong credit practices.
Return on average shareholders' equity and return on average assets were 12.1 percent and .77 percent, respectively, for fourth quarter 2006. Return on average shareholders' equity and return on average assets were 18.4 percent and 1.11 percent, respectively, for fourth quarter 2005. Total assets were $37.9 billion and shareholders' equity was $2.5 billion on December 31, 2006, compared to $36.6 billion and $2.3 billion, respectively, on December 31, 2005.
"This quarter's results are in line with expectations given the difficult operating environment," said Ken Glass, chairman and CEO. "The continued execution of our strategic initiatives and adapting our business mix to the changing economic environment positions us for earnings growth in 2007."
For the twelve months ended December 31, 2006, earnings were $462.9 million or $3.62 diluted earnings per share compared to $424.7 million or $3.28 diluted earnings per share for the same period in 2005. For the twelve months ended December 31, 2006, return on average shareholders' equity and return on average assets were 19.1 percent and 1.19 percent, respectively. For the same period in 2005, return on average shareholders' equity and return on average assets were 19.5 percent and 1.16 percent, respectively.
Comparisons between results for 2006 and 2005 are affected by a number of factors that significantly impacted 2006, including: a $209 million after-tax gain from the sale of FHN's national merchant processing business which is included in income from discontinued operations; net securities losses of $65.6 million predominantly related to repositioning approximately $2.3 billion of investment securities; estimated settlement costs of $21.3 million for a class action lawsuit; and transactions through which the incremental capital provided by the merchant divestiture was utilized, various other transactions, and accounting matters. Additionally, the interest rate environment and housing slow-down negatively impacted results in 2006.
PERFORMANCE HIGHLIGHTS
Retail/Commercial Banking
Pre-tax income for Retail/Commercial Banking was $108.3 million for fourth quarter 2006, compared to $122.8 million for fourth quarter 2005. A number of items impacted the results in fourth quarter of each year. As mentioned below, fourth quarter 2006 included other losses of $7.0 million related to a customer-initiated deposit scheme in our full-servicing banking markets, the result of employee misrepresentation in our construction lending business and the settlement of an insurance matter. Fourth quarter 2005 included divestiture gains of $7.0 million from the sale of three financial centers. Total revenues for Retail/Commercial Banking were $340.8 million for fourth quarter 2006 compared to $341.3 million for fourth quarter 2005.
Net interest income was $228.0 million in fourth quarter 2006 compared to $227.6 million in fourth quarter 2005. Loans grew 8 percent or $1.7 billion while loans held for sale decreased 76 percent or $1.2 billion and deposits increased 7 percent or $766.1 million over fourth quarter 2005. The Retail/Commercial Banking net interest margin was 4.13 percent in fourth quarter 2006 compared to 4.22 percent in the fourth quarter of last year.
Noninterest income was $112.8 million in fourth quarter 2006 compared to $113.7 million in fourth quarter 2005. Fourth quarter 2005 included a divestiture gain of $7.0 million from the sale of three financial centers. Noninterest income from insurance commissions decreased $4.2 million compared to fourth quarter 2005 due to the sale of a subsidiary in 2006. Also impacting noninterest income in fourth quarter 2006 was an increase of $3.3 million related to revenue from loan sales and securitizations as the execution of this quarter's deals improved. Market adjustments on HELOC and second-lien mortgages also created $3.0 million of revenue growth in fourth quarter 2006 as prepayments slowed.
Provision for loan losses increased to $23.3 million in fourth quarter 2006 from $15.9 million last year. This increase primarily reflects continued growth of the commercial and construction loan portfolios and an expectation of slowing economic growth.
Noninterest expense was relatively stable, increasing 3 percent to $209.2 million in fourth quarter 2006 compared to $202.6 million last year. Included in fourth quarter 2006 were $7.0 million in other losses due to a customer-initiated deposit scheme in our full-servicing banking markets, the result of employee misrepresentation in our construction lending business and the settlement of an insurance matter. This stability reflects a continued focus on efficiency.
Mortgage Banking
Mortgage Banking pre-tax income was $3.5 million for fourth quarter 2006, compared to pre-tax income of $38.9 million for fourth quarter 2005. Total revenues for Mortgage Banking were $111.9 million in fourth quarter 2006 compared to $154.3 million in fourth quarter 2005.
Net interest income decreased 41 percent to $20.4 million in fourth quarter 2006 from $34.7 million in fourth quarter 2005. An inverted yield curve resulted in compression of the spread on the warehouse, which was 1.24 percent in fourth quarter 2006 compared to 2.06 percent for the same period in 2005. Additionally, an 18 percent decrease in the warehouse related to lower origination activity negatively impacted net interest income.
Noninterest income decreased to $91.5 million in fourth quarter 2006 compared to $119.6 million in fourth quarter 2005. Noninterest income consists primarily of mortgage banking-related revenue, net of costs, from the origination and sale of mortgage loans, fees from mortgage servicing and changes in fair value of mortgage servicing rights (MSR) net of hedge gains or losses. Mortgage servicing noninterest income prior to the adoption of SFAS No. 156 in first quarter 2006 was net of amortization, impairment and other expenses related to MSR and related hedges. Subsequent to the adoption of SFAS No. 156, mortgage servicing noninterest income reflects the change in fair value of MSR combined with hedging results.
Noninterest income from mortgage origination and servicing activities declined this quarter over fourth quarter of last year. Net origination income decreased 22 percent to $69.2 million from $89.1 million in fourth quarter 2005 as loans delivered into the secondary market decreased 21 percent to $6.3 billion. Total mortgage servicing fees increased 13 percent to $83.9 million from $74.3 million reflecting mortgage servicing portfolio growth of 6 percent to $101.4 billion on December 31, 2006. Servicing fees also benefited from an increase in the mix of higher fee products.
Servicing hedging activities and changes in MSR value negatively impacted net servicing revenues by $18.0 million this quarter as compared to a year ago. Changes in the value of MSR due to factors other than runoff net of hedge results reflected a net gain of $3.2 million in fourth quarter 2006 compared to a gain of $23.0 million during the same period last year. Additionally, although MSR that prepaid this quarter were more valuable than a year ago, overall prepayments declined with lower refinance activity, causing the change in MSR value due to runoff to decrease to $66.9 million from $71.7 million last year.
Noninterest expense decreased 5 percent to $108.7 million in fourth quarter 2006 compared to $115.1 million in fourth quarter 2005 primarily due to reductions in personnel expense which were directly related to the reduction of compensation due to contraction in origination revenue, reductions in headcount and the closure of unprofitable locations. Fourth quarter 2006 expenses also included $1.4 million in severance and branch closure expenses.
Capital Markets
Capital Markets pre-tax earnings were $8.5 million in fourth quarter 2006 compared to $4.3 million in fourth quarter 2005. Total revenues for Capital Markets were $92.6 million in fourth quarter 2006 compared to $78.5 million in fourth quarter 2005.
Revenues from products other than fixed income were $49.9 million in fourth quarter 2006, an increase of $9.9 million, or 25 percent, from fourth quarter 2005. Revenues from other products include fee income from activities such as structured finance, equity research, investment banking, loan sales, portfolio advisory and the sale of bank-owned life insurance. These other sources of revenue represented 52 percent and 47 percent, respectively, of total product revenues in fourth quarter 2006 and 2005. The increase from fourth quarter 2005 was due primarily to increased fees from structured finance activities, partially offset by a decline in equity research revenues. Revenues from fixed income sales increased $1.8 million, or 4 percent, to $46.2 million in fourth quarter 2006 compared to $44.4 million in fourth quarter 2005 and reflect the continuing subdued demand for fixed income products associated with the current interest rate environment.
Net interest expense decreased $2.4 million in fourth quarter 2006 compared to fourth quarter 2005 primarily due to improved execution that decreased nonearning asset funding costs and a decrease in the internal incremental cost of equity.
Noninterest expense was $84.1 million in fourth quarter 2006 compared to $74.2 million in fourth quarter 2005. This increase was primarily due to variable compensation related to the increase in other product revenues as well as $3.1 million of severance and retirement related costs incurred in fourth quarter 2006.
Corporate
The Corporate segment's results yielded a pre-tax loss of $12.5 million in fourth quarter 2006 compared to a pre-tax loss of $19.7 million in fourth quarter 2005. Fourth quarter 2006 included $3.0 million in securities gains. In addition, revenue included $8.3 million in fourth quarter 2006 and $2.5 million in fourth quarter 2005 related to deferred compensation plans, which was offset by a related $10.2 million in fourth quarter 2006 and $3.9 million in fourth quarter 2005 in noninterest expense associated with these plans.
Income Taxes
The effective corporate tax rate this quarter was 29.2 percent. This was due to tax credits from low income housing project expenses in the retail/commercial bank and deferred compensation expenses in the corporate segment, creating no meaningful net benefit to the bottom line.
AVERAGE BALANCE SHEET
Total average assets increased 4 percent to $39.3 billion for fourth quarter 2006. Total loans increased 10 percent to $21.9 billion as commercial loans grew 14 percent and retail loans increased 6 percent. Loans held for sale decreased 34 percent to $3.8 billion. Interest-bearing core deposits increased 13 percent. Total core deposits increased 6 percent to $13.3 billion, reflecting expansion strategies which emphasize a focus on convenient hours and targeted financial center expansion. Purchased funds decreased 14 percent to $15.9 billion. Average shareholders' equity increased 10 percent in fourth quarter 2006.
The consolidated net interest margin was 2.86 percent for fourth quarter 2006 compared to 3.06 percent for fourth quarter 2005. The compression in the margin occurred as the net interest spread decreased to 2.21 percent in 2006 from 2.52 percent in 2005 while the benefit from free funding increased to 65 basis points from 54 basis points. An inverted yield curve which decreased spread on the warehouse by 82 basis points to 1.24 percent, created a negative impact on the overall corporate margin this quarter as compared to a year ago.
ASSET QUALITY
Provision for loan losses increased to $23.0 million in fourth quarter 2006 from $16.2 million in fourth quarter 2005. This increase primarily reflects continued growth of the commercial and construction loan portfolios and an expectation of slowing economic growth. As a result of this increase, the allowance to loans ratio has increased from 92 basis points in fourth quarter 2005 to 98 basis points in fourth quarter 2006. Nonperforming assets were $139.0 million on December 31, 2006, compared to $79.7 million on December 31, 2005. The nonperforming assets ratio related to the loan portfolio increased to 58 basis points in fourth quarter 2006 from 33 basis points last year. The nonperforming asset ratio continues to migrate from historical low levels due to maturation of the loan portfolio, issues with several commercial credits in the retail commercial bank's traditional lending markets, and deterioration in the residential real estate portfolio reflecting the slow down in the housing market. The net charge-off ratio increased to 25 basis points in fourth quarter 2006 from 22 basis points in 2005 as net charge-offs grew to $13.5 million from $11.0 million during a period of strong loan growth. (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
"Our earnings guidance for 2007 assumes no improvement in the current environment," Ken Glass stated. "We, like most in the industry, believe that the yield curve will remain inverted near its current levels, the housing market and mortgage industry will continue their current contraction, and certain elements of the industry will continue to experience deterioration as the economy slows."
"We have taken steps to address this environment and position ourselves for growth in 2007, including the reduction of support costs in our mortgage origination platform and the implementation of additional efficiency initiatives in capital markets during fourth quarter in order to better align these businesses with the anticipated lower level of activities in their respective markets. Each of these businesses also benefited from restructuring its sales management team, as evidenced by increases in fixed income revenues and mortgage originations in fourth quarter. Since these initiatives were just begun in the fourth quarter, the full impact will be realized throughout 2007."
"In addition to these actions our strategic initiatives will continue to create growth. Our retail/commercial bank will continue to take advantage of our leadership in Tennessee and further cross-sell to our national customers. Capital Markets will continue to build its other products beyond the traditional fixed income market. Other potential revenue opportunities include the acquisition of mortgage originators and the opening of new international fixed income offices. On the expense side we have initiated additional efficiency initiatives that should add $20 million pre-tax earnings in 2007, following the $50 million accomplished in 2006. Finally our hands-on, conservative approach to lending, broad geographic diversity, and strong credit culture should enable our asset quality trends to remain solid relative to historical levels and industry performance."
"2006 was a unique year for the company, as our financial performance was marked by a number of unusual and one time items such as the sale of our merchant business. We recognize that given this, it will be difficult for you to get a good fix on our 2007 earnings. Therefore, we have decided for 2007 to offer more specific guidance."
"For 2007, we expect the company to produce earnings for the full year at or above the current market consensus of $2.80. It is important to note that since the first quarter is impacted by seasonality of expenses and mortgage originations, growth over current levels should improve throughout the year."
This press release contains forward-looking statements involving significant risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking information. Those factors include general economic and financial market conditions, including expectations of and actual timing and amount of interest rate movements including the slope of the yield curve, competition, investor responses to these conditions, ability to execute business plans, geopolitical developments, natural disasters, and items already mentioned in this press release, as well as critical accounting estimates and other factors described in FHN's recent filings with the SEC. FHN disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
OTHER INFORMATION
FHN provides additional disclosure and discussion related to FHN's earnings and business segment performance through a financial supplement which is available on FHN's website at www.fhnc.com.
Management will also host a conference call at 8:00 a.m. Central Time Jan. 18 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 Jan. 18 by dialing 1-866-316-1371 (international participants dial 1-913-312-1231). The conference will also be webcast live through the investor relations section of FHN's website. To access the webcast, visit http://www.shareholder.com/fhnc/MediaRegister.cfm?MediaID=23451. A replay of the call will be available from 11:00 a.m. Central Time Jan. 18 until 11 p.m. Feb. 1, 2007, by calling 1-888-203-1112 or 1-719-457-0820 for international participants. The passcode is 7546338. The event will be archived and made available by 1 p.m. Central Time Jan. 18 on FHN's website 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 12,000 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 25 mortgage originators and top 15 servicers * 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
Quarterly Growth
(Unaudited)
Quarter Ended
December 31
------------------- Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Interest income $604,562 $519,475 16.4 +
Less interest expense 358,565 264,663 35.5 +
---------------------------------------------------------------------
Net interest income 245,997 254,812 3.5 -
Provision for loan losses 22,983 16,175 42.1 +
---------------------------------------------------------------------
Net interest income after
provision for loan losses 223,014 238,637 6.5 -
Noninterest income:
Capital markets 92,809 80,896 14.7 +
Mortgage banking 87,524 116,288 24.7 -
Deposit transactions and cash
management 43,317 42,196 2.7 +
Revenue from loan sales and
securitizations 16,276 13,146 23.8 +
Insurance commissions 8,951 13,144 31.9 -
Trust services and investment
management 10,424 10,873 4.1 -
Securities gains/(losses), net 3,002 (181) NM
Gains on divestitures -- 7,029 NM
All other income and commissions 54,041 39,181 37.9 +
---------------------------------------------------------------------
Total noninterest income 316,344 322,572 1.9 -
---------------------------------------------------------------------
Adjusted gross income after
provision for loan losses 539,358 561,209 3.9 -
Noninterest expense:
Employee compensation, incentives 257,397 244,943 5.1 +
and benefits
Occupancy 29,298 28,000 4.6 +
Equipment rentals, depreciation
and maintenance 17,867 19,108 6.5 -
Operations services 17,550 18,363 4.4 -
Communications and courier 11,978 14,379 16.7 -
Amortization of intangible assets 2,460 2,667 7.8 -
All other expense 95,080 87,406 8.8 +
---------------------------------------------------------------------
Total noninterest expense 431,630 414,866 4.0 +
---------------------------------------------------------------------
Pre-tax income 107,728 146,343 26.4 -
Provision for income taxes 31,448 42,695 26.3 -
---------------------------------------------------------------------
Income from continuing operations 76,280 103,648 26.4 -
Income from discontinued operations,
net of tax 187 5,369 96.5 -
---------------------------------------------------------------------
Income before cumulative effect
of changes in accounting principle 76,467 109,017 29.9 -
Cumulative effect of changes in
accounting principle, net of tax -- (3,098) NM
---------------------------------------------------------------------
Net income $76,467 $105,919 27.8 -
===================
---------------------------------------------------------------------
Diluted earnings per common share from
continuing operations $ .60 $ .80 25.0 -
Diluted earnings per common share before
cumulative effect of changes in
accounting principle .60 .84 28.6 -
Diluted earnings per common share .60 .81 25.9 -
Dividends declared .45 .45
Diluted shares 127,784 130,043
SELECTED FINANCIAL RATIOS:
--------------------------
Return on average assets .77% 1.11%
Return on average shareholders' equity 12.1 18.4
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-1
FIRST HORIZON NATIONAL CORPORATION
STATEMENTS OF INCOME
Yearly Growth
(Unaudited)
Year-to-date
December 31
----------------------- Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Interest income $2,329,111 $1,840,174 26.6 +
Less interest expense 1,332,174 856,147 55.6 +
---------------------------------------------------------------------
Net interest income 996,937 984,027 1.3 +
Provision for loan losses 83,129 67,678 22.8 +
---------------------------------------------------------------------
Net interest income after
provision for loan losses 913,808 916,349 .3 -
Noninterest income:
Capital markets 383,047 353,005 8.5 +
Mortgage banking 370,613 479,619 22.7 -
Deposit transactions and cash
management 168,599 156,190 7.9 +
Revenue from loan sales and
securitizations 51,675 47,575 8.6 +
Insurance commissions 46,632 54,091 13.8 -
Trust services and investment
management 41,514 44,614 6.9 -
Securities losses, net (65,629) (578) NM
Gains on divestitures -- 7,029 NM
All other income and commissions 170,442 165,711 2.9 +
---------------------------------------------------------------------
Total noninterest income 1,166,893 1,307,256 10.7 -
---------------------------------------------------------------------
Adjusted gross income after
provision for loan losses 2,080,701 2,223,605 6.4 -
Noninterest expense:
Employee compensation, incentives
and benefits 1,023,685 988,946 3.5 +
Occupancy 116,670 104,161 12.0 +
Equipment rentals, depreciation
and maintenance 73,882 74,367 .7 -
Operations services 70,041 71,949 2.7 -
Communications and courier 53,249 54,388 2.1 -
Amortization of intangible assets 11,462 10,700 7.1 +
All other expense 393,632 322,383 22.1 +
---------------------------------------------------------------------
Total noninterest expense 1,742,621 1,626,894 7.1 +
---------------------------------------------------------------------
Pre-tax income 338,080 596,711 43.3 -
Provision for income taxes 87,278 185,988 53.1 -
---------------------------------------------------------------------
Income from continuing operations 250,802 410,723 38.9 -
Income from discontinued operations,
net of tax 210,767 17,072 NM
---------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principle 461,569 427,795 7.9 +
Cumulative effect of changes in
accounting principle, net of tax 1,345 (3,098) NM
---------------------------------------------------------------------
Net income $ 462,914 $ 424,697 9.0 +
======================
---------------------------------------------------------------------
Diluted earnings per common share
from continuing operations $ 1.96 $ 3.17 38.2 -
Diluted earnings per common share
before cumulative effect of 3.61 3.31 9.1 +
changes in accounting principle
Diluted earnings per common share 3.62 3.28 10.4 +
Dividends declared 1.80 1.74
Diluted shares 127,917 129,364
SELECTED FINANCIAL RATIOS:
--------------------------
Return on average assets 1.19% 1.16%
Return on average shareholders' equity 19.1 19.5
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
A-2
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Quarterly Growth
(Unaudited)
Quarter Ended
December 31
------------------------ Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 6,903,708 $ 6,356,977 8.6 +
Real estate commercial 1,187,431 1,208,945 1.8 -
Real estate construction 2,741,118 1,973,121 38.9 +
---------------------------------------------------------------------
Total commercial loans 10,832,257 9,539,043 13.6 +
Retail:
Real estate residential 8,211,506 8,149,419 .8 +
Real estate construction 2,081,885 1,874,831 11.0 +
Other retail 160,366 170,470 5.9 -
Credit card receivables 201,092 244,161 17.6 -
Real estate loans pledged
against other collateralized
borrowings (a) 406,926 -- NM
---------------------------------------------------------------------
Total retail loans 11,061,775 10,438,881 6.0 +
---------------------------------------------------------------------
Total loans, net of
unearned income 21,894,032 19,977,924 9.6 +
Investment securities 3,952,007 2,858,410 38.3 +
Loans held for sale 3,796,828 5,732,993 33.8 -
Other earning assets 4,670,914 4,622,451 1.0 +
---------------------------------------------------------------------
Total earning assets 34,313,781 33,191,778 3.4 +
Cash and due from banks 828,291 781,178 6.0 +
Other assets 4,185,709 3,747,454 11.7 +
---------------------------------------------------------------------
Total assets $39,327,781 $37,720,410 4.3 +
========================----------
Savings $ 3,327,576 $ 2,844,621 17.0 +
Interest-bearing demand deposits 1,792,484 1,850,255 3.1 -
Time deposits 2,921,197 2,402,900 21.6 +
---------------------------------------------------------------------
Total interest-bearing core
deposits 8,041,257 7,097,776 13.3 +
Noninterest-bearing deposits 5,293,435 5,427,923 2.5 -
---------------------------------------------------------------------
Total core deposits 13,334,692 12,525,699 6.5 +
Certificates of deposit $100,000
and more 9,820,358 11,393,018 13.8 -
---------------------------------------------------------------------
Total deposits 23,155,050 23,918,717 3.2 -
Short-term borrowed funds 6,100,958 7,164,720 14.8 -
Term borrowings 5,307,502 2,665,867 99.1 +
Other collateralized borrowings (a) 411,466 -- NM
---------------------------------------------------------------------
Total long-term debt 5,718,968 2,665,867 114.5 +
Other liabilities 1,546,779 1,391,432 11.2 +
Preferred stock of subsidiary 295,274 295,274 --
Shareholders' equity 2,510,752 2,284,400 9.9 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $39,327,781 $37,720,410 4.3 +
========================
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) During 2006, FHN sold loans through on-balance sheet
securitizations, which were structured as financings for
accounting purposes.
A-3
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Yearly Growth
(Unaudited)
Year-to-date
December 31
------------------------ Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 6,674,919 $ 5,979,877 11.6 +
Real estate commercial 1,223,218 1,116,449 9.6 +
Real estate construction 2,475,476 1,642,379 50.7 +
---------------------------------------------------------------------
Total commercial loans 10,373,613 8,738,705 18.7 +
Retail:
Real estate residential 8,481,171 7,701,271 10.1 +
Real estate construction 2,034,884 1,488,873 36.7 +
Other retail 161,972 164,960 1.8 -
Credit card receivables 209,428 240,875 13.1 -
Real estate loans pledged
against other collateralized
borrowings (a) 243,107 -- NM
---------------------------------------------------------------------
Total retail loans 11,130,562 9,595,979 16.0 +
---------------------------------------------------------------------
Total loans, net of
unearned income 21,504,175 18,334,684 17.3 +
Investment securities 3,451,491 2,879,965 19.8 +
Loans held for sale 4,336,586 5,980,124 27.5 -
Other earning assets 4,720,089 4,755,214 .7 -
---------------------------------------------------------------------
Total earning assets 34,012,341 31,949,987 6.5 +
Cash and due from banks 817,445 752,245 8.7 +
Other assets 3,934,781 3,858,204 2.0 +
---------------------------------------------------------------------
Total assets $38,764,567 $36,560,436 6.0 +
========================
Savings $ 3,191,378 $ 2,843,155 12.2 +
Interest-bearing demand deposits 1,848,110 1,770,462 4.4 +
Time deposits 2,795,352 2,242,837 24.6 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 7,834,840 6,856,454 14.3 +
Noninterest-bearing deposits 5,169,202 5,263,129 1.8 -
---------------------------------------------------------------------
Total core deposits 13,004,042 12,119,583 7.3 +
Certificates of deposit
$100,000 and more 9,747,716 10,896,283 10.5 -
---------------------------------------------------------------------
Total deposits 22,751,758 23,015,866 1.1 -
Short-term borrowed funds 6,696,809 7,096,287 5.6 -
Term borrowings 4,815,131 2,560,085 88.1 +
Other collateralized borrowings (a) 247,236 -- NM
---------------------------------------------------------------------
Total long-term debt 5,062,367 2,560,085 97.7 +
Other liabilities 1,535,395 1,481,289 3.7 +
Preferred stock of subsidiary 295,274 229,912 28.4 +
Shareholders' equity 2,422,964 2,176,997 11.3 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $38,764,567 $36,560,436 6.0 +
========================
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) During 2006, FHN sold loans through on-balance sheet
securitizations, which were structured as financings for
accounting purposes.
A-4
FIRST HORIZON NATIONAL CORPORATION
PERIOD-END STATEMENTS OF CONDITION
(Unaudited)
December 31
------------------------ Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 7,201,009 $ 6,578,117 9.5 +
Real estate commercial 1,136,590 1,213,052 6.3 -
Real estate construction 2,753,458 2,108,121 30.6 +
---------------------------------------------------------------------
Total commercial loans 11,091,057 9,899,290 12.0 +
Retail:
Real estate residential 7,973,313 8,368,219 4.7 -
Real estate construction 2,085,133 1,925,060 8.3 +
Other retail 161,178 168,413 4.3 -
Credit card receivables 203,307 251,016 19.0 -
Real estate loans pledged against
other collateralized
borrowings (a) 590,917 -- NM
---------------------------------------------------------------------
Total retail loans 11,013,848 10,712,708 2.8 +
---------------------------------------------------------------------
Total loans, net of unearned
income 22,104,905 20,611,998 7.2 +
Investment securities 3,890,420 2,912,486 33.6 +
Loans held for sale 2,873,577 4,424,267 35.0 -
Other earning assets 3,451,319 3,629,314 4.9 -
---------------------------------------------------------------------
Total earning assets 32,320,221 31,578,065 2.4 +
Cash and due from banks 976,619 945,547 3.3 +
Discontinued assets 416 163,545 99.7 -
Other assets 4,621,003 3,891,904 18.7 +
---------------------------------------------------------------------
Total assets $37,918,259 $36,579,061 3.7 +
========================
Savings $ 3,354,180 $ 2,795,723 20.0 +
Interest-bearing demand deposits 1,969,700 1,909,349 3.2 +
Time deposits 2,924,050 2,478,946 18.0 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 8,247,930 7,184,018 14.8 +
Noninterest-bearing deposits 5,447,673 5,201,844 4.7 +
---------------------------------------------------------------------
Total core deposits 13,695,603 12,385,862 10.6 +
Certificates of deposit
$100,000 and more 6,517,629 10,931,695 40.4 -
---------------------------------------------------------------------
Total deposits 20,213,232 23,317,557 13.3 -
Short-term borrowed funds 7,010,269 5,331,397 31.5 +
Term borrowings 5,243,961 3,437,643 52.5 +
Other collateralized borrowings (a) 592,399 -- NM
---------------------------------------------------------------------
Total long-term debt 5,836,360 3,437,643 69.8 +
Discontinued liabilities 6,966 122,026 94.3 -
Other liabilities 2,093,772 1,727,625 21.2 +
Preferred stock of subsidiary 295,270 295,274 --
Shareholders' equity 2,462,390 2,347,539 4.9 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $37,918,259 $36,579,061 3.7 +
========================
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) During 2006, FHN sold loans through on-balance sheet
securitizations, which were structured as financings for
accounting purposes.
A-5
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
(Thousands) 4Q06 3Q06 2Q06 1Q06 4Q05
---------------------------------------------------------------------
ALLOWANCE FOR
LOAN LOSSES:
Beginning
Reserve $206,829 $199,835 $195,011 $189,705 $185,029
Provision 22,983 23,694 18,653 17,799 16,175
Divestitures
/acquisitions -- (275) -- (1,195) (516)
Charge-offs (16,535) (19,782) (17,518) (14,791) (14,586)
Recoveries 3,008 3,357 3,689 3,493 3,603
---------------------------------------------------------------------
Ending
Balance $216,285 $206,829 $199,835 $195,011 $189,705
-----------------====================================================
Reserve for
off-balance
sheet
commitments $ 9,378 $ 9,230 $ 9,250 $ 9,420 $ 10,650
Total of
allowance
for loan
losses and
reserve for
off-balance
sheet
commitments $225,663 $216,059 $209,085 $204,431 $200,355
---------------------------------------------------------------------
NONPERFORMING ASSETS:
RETAIL/
COMMERCIAL
BANKING:
Nonperforming
loans $ 82,837 $ 63,956 $ 61,358 $ 49,332 $ 40,771
Foreclosed
real estate 31,230 29,947 24,425 19,556 18,932
---------------------------------------------------------------------
Total Retail/
Commercial
Banking 114,067 93,903 85,783 68,888 59,703
---------------------------------------------------------------------
MORTGAGE BANKING:
Nonperforming
loans - held
for sale 10,793 10,488 14,976 16,000 11,488
Foreclosed
real estate 14,168 13,598 11,899 9,538 8,478
---------------------------------------------------------------------
Total
Mortgage
Banking 24,961 24,086 26,875 25,538 19,966
---------------------------------------------------------------------
Total
nonperforming
assets $139,028 $117,989 $112,658 $ 94,426 $ 79,669
====================================================
Loans past
due 90 days
or more (a) $167,192 $160,662 $165,759 $187,974 $213,658
Guaranteed
portion of
loans past due
90 days or
more (a) 128,869 130,373 136,529 159,680 178,838
Foreclosed real
estate from
GNMA loans (b) 18,121 21,679 24,253 19,865 --
Period-end
loans, net
of unearned
income
(millions) $ 22,105 $ 21,955 $ 21,717 $ 21,212 $ 20,612
Insured loans 730 730 753 812 827
---------------------------------------------------------------------
Loans
excluding
insured loans $ 21,375 $ 21,225 $ 20,964 $ 20,400 $ 19,785
====================================================
Off-balance
sheet
commitments
(millions) (c) $ 7,587 $ 7,416 $ 7,305 $ 7,787 $ 9,091
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) Includes loans held for sale.
(b) Prior to 2006 properties acquired by foreclosure through GNMA's
repurchase program were classified as receivables in
Other Assets on the Consolidated Statements of Condition.
(c) Amount of off-balance sheet commitments for which a reserve has
been provided.
A-6
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
4Q06 3Q06 2Q06 1Q06 4Q05
---------------------------------------------------------------------
FHN CONSOLIDATED:
Nonperforming loans
ratio (a) .37% .29% .28% .23% .20%
Nonperforming
assets
ratio (b) .58 .49 .45 .37 .33
Allowance to total
loans .98 .94 .92 .92 .92
Allowance to loans
excluding insured
loans 1.01 .97 .95 .96 .96
Allowance to
nonperforming
loans (c) 261.10 323.39 325.69 395.30 465.29
Allowance to
nonperforming
assets (d) 168.66 192.40 204.58 248.66 278.24
Net charge-off
ratio (e) .25 .30 .26 .22 .22
RETAIL/COMMERCIAL
BANKING:
Nonperforming
assets
ratio (b) .52% .44% .40% .33% .29%
Allowance to
nonperforming
assets 189.61 220.26 232.95 283.08 317.75
MORTGAGE BANKING:
Nonperforming assets
ratio (f) .02% .02% .03% .03% .02%
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(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
A-7
FIRST HORIZON NATIONAL CORPORATION
BUSINESS SEGMENT HIGHLIGHTS
(Unaudited)
---------------------------------------------------------------------
(Thousands) 4Q06 3Q06 2Q06 1Q06 4Q05
---------------------------------------------------------------------
RETAIL/COMMERCIAL
BANKING
Total
revenues(a) $340,698 $342,123 $342,696 $331,245 $341,314
Provision for
loan losses 23,264 23,550 18,361 18,026 15,897
Noninterest
expenses 209,143 203,365 211,973 215,004 202,624
----------------------------------------------------
Pre-tax
income 108,291 115,208 112,362 98,215 122,793
Provision for
income taxes 33,608 35,385 29,210 28,063 36,275
----------------------------------------------------
Net income
from
continuing
operations 74,683 79,823 83,152 70,152 86,518
Income/(loss)
from
discontinued
operations,
net of tax 187 (69) 376 210,273 5,369
----------------------------------------------------
Income before
cumulative
effect 74,870 79,754 83,528 280,425 91,887
Cumulative
effect of
changes in
accounting
principle,
net of tax -- -- -- 522 (3,098)
----------------------------------------------------
Net income $ 74,870 $ 79,754 $ 83,528 $280,947 $ 88,789
MORTGAGE
BANKING
Total
revenues(a) $111,971 $111,206 $144,652 $109,130 $154,225
Provision for
loan losses (281) 144 292 (227) 278
Noninterest
expenses 108,751 136,661 115,099 114,629 115,020
----------------------------------------------------
Pre-tax
income/(loss) 3,501 (25,599) 29,261 (5,272) 38,927
Provision/
(benefit)
for income
taxes 36 (10,570) 10,065 (2,084) 12,112
----------------------------------------------------
Income/(loss)
before
cumulative
effect 3,465 (15,029) 19,196 (3,188) 26,815
Cumulative
effect of
changes in
accounting
principle,
net of tax -- -- -- 414 --
----------------------------------------------------
Net income/
(loss) $ 3,465 $(15,029) $ 19,196 $ (2,774) $ 26,815
CAPITAL MARKETS
Total
revenues(a) $ 92,616 $ 96,963 $ 99,467 $ 90,910 $ 78,458
Noninterest
expenses 84,082 81,786 83,710 82,613 74,182
----------------------------------------------------
Pre-tax income 8,534 15,177 15,757 8,297 4,276
Provision for
income taxes 3,170 5,678 5,888 3,069 1,593
----------------------------------------------------
Income before
cumulative
effect 5,364 9,499 9,869 5,228 2,683
Cumulative
effect of
changes in
accounting
principle,
net of tax -- -- -- 179 --
----------------------------------------------------
Net income $ 5,364 $ 9,499 $ 9,869 $ 5,407 $ 2,683
CORPORATE
Total
revenues(a) $ 17,056 $ 19,256 $ 1,795 $(87,954) $ 3,387
Noninterest
expenses 29,654 31,087 12,229 22,835 23,040
----------------------------------------------------
Pre-tax loss (12,598) (11,831) (10,434) (110,789) (19,653)
Income tax
benefit (5,366) (4,717) (2,150) (42,007) (7,285)
----------------------------------------------------
Loss before
cumulative
effect (7,232) (7,114) (8,284) (68,782) (12,368)
Cumulative
effect of
changes in
accounting
principle,
net of tax -- -- -- 230 --
----------------------------------------------------
Net loss $ (7,232) $ (7,114) $ (8,284) $(68,552) $(12,368)
TOTAL CONSOLIDATED
Total
revenues(a) $562,341 $569,548 $588,610 $443,331 $577,384
Provision for
loan losses 22,983 23,694 18,653 17,799 16,175
Total
noninterest
expenses 431,630 452,899 423,011 435,081 414,866
----------------------------------------------------
Consolidated
pre-tax
income/(loss) 107,728 92,955 146,946 (9,549) 146,343
Provision/
(benefit)
for income
taxes 31,448 25,776 43,013 (12,959) 42,695
----------------------------------------------------
Net income
from
continuing
operations 76,280 67,179 103,933 3,410 103,648
Income/(loss)
from
discontinued
operations,
net of tax 187 (69) 376 210,273 5,369
----------------------------------------------------
Income before
cumulative
effect 76,467 67,110 104,309 213,683 109,017
Cumulative
effect of
changes in
accounting
principle,
net of tax -- -- -- 1,345 (3,098)
----------------------------------------------------
Net income $ 76,467 $ 67,110 $104,309 $215,028 $105,919
----------------------------------------------------
---------------------------------------------------------------------
Certain previously reported amounts have been reclassified to agree
with current presentation.
(a) Includes noninterest income and net interest income/(expense)
A-8