MEMPHIS, Tenn., Oct. 18, 2006 (PRIMEZONE) -- First Horizon National Corporation (NYSE:FHN) announced third quarter 2006 earnings of $67.1 million or $.53 per diluted share. As previously announced, this quarter's results included the estimated settlement costs of $21.3 million for a class action lawsuit. Additionally, the interest rate environment and housing slow-down negatively impacted the Mortgage Banking segment. In 2005, third quarter earnings were $112.9 million or $.87 per diluted share. Other highlights for the quarter included:
-- Commercial loans grew 17 percent and retail loans grew 16 percent
over third quarter 2005
-- Retail/Commercial Banking deposits grew 9 percent over third
quarter 2005
-- Capital Markets non-fixed income product revenues grew 38 percent
compared to third quarter 2005
-- Asset quality remains solid reflecting geographic diversity and
strong credit practices
Return on average shareholders' equity and return on average assets were 10.9 percent and .67 percent, respectively, for third quarter 2006. Return on average shareholders' equity and return on average assets were 20.2 percent and 1.18 percent, respectively, for third quarter 2005. Total assets were $40.1 billion and shareholders' equity was $2.5 billion on September 30, 2006, compared to $37.0 billion and $2.3 billion, respectively, on September 30, 2005.
"We remain confident in our core strategy which continued to show progress in the third quarter," said First Horizon National Corporation Chairman and CEO, Ken Glass. "In this period, we expanded our retail/commercial banking footprint, experienced the positive impact of cross-sell penetration, and made gains in the development and distribution of capital markets products other than fixed income. We believe that our vision of organically creating a national financial services organization and recruiting high-performing, experienced talent will deliver above-industry performance and provide long term value to our shareholders."
Including the impact of the merchant processing sale completed in first quarter 2006, diluted earnings per share were $3.02 and $2.47 for the nine-months ended September 30, 2006 and 2005, respectively. For the nine-months ended September 30, 2006, return on average shareholders' equity and return on average assets were 21.6 percent and 1.34 percent, respectively. Return on average shareholders' equity and return on average assets were 19.9 percent and 1.18 percent, respectively, for the nine-months ended September 30, 2005.
PERFORMANCE HIGHLIGHTS
Retail/Commercial Banking
Pre-tax income for Retail/Commercial Banking increased 5 percent to $114.7 million for third quarter 2006, compared to $109.3 million for third quarter 2005. Total revenues for Retail/Commercial Banking increased 3 percent to $342.3 million for third quarter 2006 compared to $331.4 million for third quarter 2005.
Net interest income increased 3 percent to $231.9 million in third quarter 2006 from $224.8 million in third quarter 2005 as earning assets grew 5 percent, or $1.0 billion. Loans grew 15 percent or $2.8 billion while loans held for sale decreased 81 percent or $1.8 billion and deposits increased 9 percent or $1.0 billion over third quarter 2005. The Retail/Commercial Banking net interest margin was 4.21 percent in third quarter 2006 compared to 4.28 percent in the third quarter of last year. This compression reflects competitive positioning as the current cycle of Fed rate increases apparently came to an end.
Noninterest income increased 4 percent to $110.4 million in third quarter 2006 from $106.6 million in third quarter 2005. Fees from deposit transactions and cash management increased 8 percent or $3.2 million compared to third quarter 2005 due to deposit growth and pricing initiatives. In 2005, a charge of $3.9 million resulted from a write-off of net capitalized expenses on HELOC held for sale which prepaid faster than anticipated. Additionally, third quarter 2005 included $3.1 million from a settlement received from an insurance company.
Provision for loan losses increased to $23.6 million in third quarter 2006 from $22.4 million last year. The 2005 provision included $3.8 million of hurricane losses. Excluding this item, the provision for loan losses would have been $18.6 million. The $5.0 million increase primarily reflects an expectation of slowing economic growth and the migration of a few loans to the watch list.
Noninterest expense was relatively stable, increasing 2 percent to $204.0 million in third quarter 2006 compared to $199.7 million last year. This increase includes $5.2 million related to the expansion of national businesses within Retail/Commercial Banking. This stability reflects a continued focus on efficiency which resulted in a 60 basis point improvement in the efficiency ratio in third quarter 2006 compared to the prior year.
Mortgage Banking
Mortgage Banking had a pre-tax loss of $25.5 million for third quarter 2006, compared to pre-tax income of $60.6 million for third quarter 2005. Total revenues for Mortgage Banking were $118.2 million in third quarter 2006 compared to $193.0 million in third quarter 2005.
Net interest income decreased 50 percent to $20.9 million in third quarter 2006 from $41.8 million in third quarter 2005. An inverted yield curve resulted in compression of the spread on the warehouse, which was 1.18 percent in third quarter 2006 compared to 2.33 percent for the same period in 2005. Additionally, a 31 percent decrease in the warehouse related to lower origination activity negatively impacted net interest income.
Noninterest income decreased to $97.3 million in third quarter 2006 compared to $151.2 million in third 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 third quarter of last year. Net origination income decreased 41 percent to $67.7 million from $115.5 million in third quarter 2005 as loans delivered into the secondary market decreased 39 percent to $6.5 billion. Total mortgage servicing fees increased 24 percent to $86.2 million from $69.7 million reflecting mortgage servicing portfolio growth of 7 percent to $100.2 billion on September 30, 2006. Servicing fees also benefited from an increase in the mix of higher fee products.
Servicing hedging activities and write-off of MSR values negatively impacted net servicing revenues by $24.4 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 loss of $5.8 million in third quarter 2006 compared to a gain of $30.3 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 $60.3 million from $72.0 million last year.
Other noninterest income decreased $3.3 million. Third quarter 2005 included a settlement of $4.6 million from an insurance company. Income from a deferred compensation plan increased $1.7 million from third quarter 2005. This increase in revenue was matched by a corresponding $1.7 million increase in noninterest expense associated with this plan.
Noninterest expense increased 9 percent or $11.4 million to $143.6 million in third quarter 2006 compared to $132.2 million in third quarter 2005. Excluding $21.3 million for the estimated costs of settling a class action lawsuit, noninterest expense decreased 8 percent primarily due to reductions in personnel expense which were directly related to the contraction in origination revenue.
Capital Markets
Capital Markets pre-tax earnings were $13.8 million in third quarter 2006 compared to $2.5 million in third quarter 2005. Total revenues for Capital Markets were $100.1 million in third quarter 2006 compared to $78.5 million in third quarter 2005.
Revenues from products other than fixed income were $56.7 million in third quarter 2006, an increase of $15.6 million, or 38 percent, from third 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 58 percent of total product revenues in third quarter 2006 compared to 48 percent in third quarter 2005. The increase from third quarter 2005 was due to increased fees from structured finance activities. Revenues from fixed income sales decreased $2.4 million, or 5 percent, to $41.5 million in third quarter 2006 compared to $43.9 million in third quarter 2005 reflecting the current interest rate environment and its continuing negative impact on the demand for fixed income products. Other non-product revenues relating to a deferred compensation plan increased $1.8 million from third quarter 2005. This increase in revenue was offset by a related $2.1 million increase in noninterest expense associated with this plan.
Net interest expense decreased $6.3 million in third quarter 2006 compared to third quarter 2005 primarily due to a increase in net average earning assets, improved execution that decreased nonearning asset funding costs and a decrease in the internal incremental cost of equity.
Noninterest expense was $86.3 million in third quarter 2006 compared to $76.0 million in third quarter 2005. This increase was primarily due to variable compensation related to the increase in other product revenues and a $2.1 million increase in deferred compensation plan expense mentioned above.
Corporate
The Corporate segment's results yielded a pre-tax loss of $10.1 million in third quarter 2006 compared to a pre-tax loss of $14.4 million in third quarter 2005. The third quarter 2006 results include $8.8 million of net securities gains from the sale of MasterCard Inc. securities and gains from venture capital investments. Noninterest expense growth resulted from the write-off of a holding company investment, venture capital commissions and project costs.
AVERAGE BALANCE SHEET
Total average assets increased 4 percent to $39.5 billion for third quarter 2006. Total loans increased 16 percent to $21.8 billion as commercial loans grew 17 percent and retail loans increased 16 percent. Loans held for sale decreased 39 percent to $4.2 billion. Average earning assets increased 3 percent to $34.6 billion. Interest-bearing core deposits increased 16 percent. Total core deposits increased 6 percent to $13.2 billion, which reflects market share gains in Tennessee markets, new market expansion and improved national cross-sell efforts; however, average escrow deposits declined $392.7 million due to lower mortgage activities. Purchased funds decreased 15 percent to $16.5 billion. Average shareholders' equity increased 10 percent in third quarter 2006.
The consolidated net interest margin was 2.90 percent for third quarter 2006 compared to 3.09 percent for third quarter 2005. The compression in the margin occurred as the net interest spread decreased to 2.25 percent in 2006 from 2.59 percent in 2005 while the benefit from free funding increased to 65 basis points from 50 basis points. An inverted yield curve which decreased spread on the warehouse by 115 basis points to 1.18 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 $23.7 million in third quarter 2006 from $22.6 million in third quarter 2005. The 2005 provision included $3.8 million of hurricane losses. Excluding this item, the provision for loan losses would have been $18.8 million. The $4.9 million increase primarily reflects an expectation of slowing economic growth and the migration of a few loans to the watch list. Nonperforming assets were $118.0 million on September 30, 2006, compared to $79.0 million on September 30, 2005. The nonperforming assets ratio related to the loan portfolio increased to 49 basis points in third quarter 2006 from 35 basis points last year and 45 basis points in second quarter 2006. The nonperforming asset ratio experienced some migration from historical low levels as the loan portfolio matured and modest deterioration of a few commercial credits in the retail commercial bank's traditional lending markets occurred. The net charge-off ratio increased to 30 basis points in third quarter 2006 from 20 basis points in 2005 as net charge-offs grew to $16.4 million from $9.2 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
"While macro environment issues will continue to impact earnings growth into next quarter, our overall strategy continues to position our business for strong sustained earnings growth," concluded Glass.
This press release contains forward-looking statements involving significant risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking information. Those factors include general economic and financial market conditions, including expectations of and actual timing and amount of interest rate movements including the slope of the yield curve, competition, customer and investor responses to these conditions, ability to execute business plans, geopolitical developments, natural disasters, and items already mentioned in this press release, as well as critical accounting estimates and other factors described in FHN's recent filings with the SEC. FHN disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
OTHER INFORMATION
FHN provides additional disclosure and discussion related to FHN's earnings and business segment performance through a financial supplement which is available in the investor relations section of FHN's website at www.fhnc.com.
Management will also host a conference call at 8:00 a.m. Central Time October 19 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 October 19 by dialing 1-800-289-0508 (international participants dial 1-913-981-5550). 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. A replay of the call will be available from 11 a.m. Central Time October 19 until 11:00 p.m. November 1 by calling 1-888-203-1112 or 1-719-457-0820 for international participants. The passcode is 1194653. The event will be archived and made available by 1 p.m. Central Time October 19 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 expressed or implied herein, we will not provide any earnings guidance, directly or indirectly, express or implied.
GENERAL INFORMATION
About First Horizon
Over 12,000 employees of First Horizon National Corp. (NYSE:FHN) provide financial services to individuals and business customers through hundreds of offices located in 46 states. The corporation's three major brands -- FTN Financial, First Horizon and First Tennessee -– provide customers with a broad range of products and services including:
-- Capital Markets, one of the nation's top underwriters of U.S.
government agency securities
-- Mortgage Banking, one of the nation's top 25 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
Quarterly Growth
(Unaudited)
Quarter Ended
September 30
-------------------- Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Interest income $612,598 $497,438 23.2 +
Less interest expense 360,977 237,278 52.1 +
---------------------------------------------------------------------
Net interest income 251,621 260,160 3.3 -
Provision for loan losses 23,694 22,608 4.8 +
---------------------------------------------------------------------
Net interest income after
provision for loan losses 227,927 237,552 4.1 -
Noninterest income:
Mortgage banking 89,393 140,482 36.4 -
Capital markets 95,215 82,158 15.9 +
Deposit transactions and
cash management 44,503 41,268 7.8 +
Insurance commissions 10,534 12,673 16.9 -
Revenue from loan sales
and securitizations 11,830 10,878 8.8 +
Trust services and investment
management 9,609 11,299 15.0 -
Securities gains/(losses), net 8,757 (406) NM
Other 51,544 48,247 6.8 +
---------------------------------------------------------------------
Total noninterest income 321,385 346,599 7.3 -
---------------------------------------------------------------------
Adjusted gross income after
provision for loan losses 549,312 584,151 6.0 -
Noninterest expense:
Employee compensation, incentives
and benefits 260,351 259,583 .3 +
Occupancy 29,745 26,082 14.0 +
Operations services 17,976 18,739 4.1 -
Equipment rentals, depreciation,
and maintenance 17,893 19,033 6.0 -
Communications and courier 12,950 14,352 9.8 -
Amortization of intangible assets 3,233 2,893 11.8 +
Other 114,209 85,493 33.6 +
---------------------------------------------------------------------
Total noninterest expense 456,357 426,175 7.1 +
---------------------------------------------------------------------
Pre-tax income 92,955 157,976 41.2 -
Provision for income taxes 25,776 49,862 48.3 -
---------------------------------------------------------------------
Income from continuing operations 67,179 108,114 37.9 -
Loss/income from discontinued
operations, net of tax (69) 4,830 NM
---------------------------------------------------------------------
Net income $ 67,110 $112,944 40.6 -
====================
---------------------------------------------------------------------
Diluted earnings per share from
continuing operations $ .53 $ .83 36.1 -
Diluted earnings per common share $ .53 $ .87 39.1 -
Dividends declared $ .45 $ .43
Diluted shares 127,523 129,924
SELECTED FINANCIAL RATIOS:
-------------------------
Return on average assets .67% 1.18%
Return on average shareholders'
equity 10.9 20.2
---------------------------------------------------------------------
A-1
FIRST HORIZON NATIONAL CORPORATION
STATEMENTS OF INCOME
Yearly Growth
(Unaudited)
Year-to-date
September 30
----------------------- Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Interest income $1,724,549 $1,320,699 30.6 +
Less interest expense 973,609 591,484 64.6 +
---------------------------------------------------------------------
Net interest income 750,940 729,215 3.0 +
Provision for loan losses 60,146 51,503 16.8 +
---------------------------------------------------------------------
Net interest income after
provision for loan losses 690,794 677,712 1.9 +
Noninterest income:
Mortgage banking 291,656 368,237 20.8 -
Capital markets 290,238 272,109 6.7 +
Deposit transactions and
cash management 125,282 113,994 9.9 +
Insurance commissions 37,681 40,947 8.0 -
Revenue from loan sales
and securitizations 35,399 34,429 2.8 +
Trust services and
investment management 31,090 33,741 7.9 -
Securities losses, net (68,631) (397) NM
Other 116,401 126,530 8.0 -
---------------------------------------------------------------------
Total noninterest income 859,116 989,590 13.2 -
---------------------------------------------------------------------
Adjusted gross income after
provision for loan losses 1,549,910 1,667,302 7.0 -
Noninterest expense:
Employee compensation, incentives
and benefits 766,288 744,003 3.0 +
Occupancy 87,372 76,161 14.7 +
Operations services 52,491 53,586 2.0 -
Equipment rentals, depreciation,
and maintenance 56,015 55,259 1.4 +
Communications and courier 41,271 40,009 3.2 +
Amortization of intangible assets 9,002 8,033 12.1 +
Other 307,119 239,883 28.0 +
---------------------------------------------------------------------
Total noninterest expense 1,319,558 1,216,934 8.4 +
---------------------------------------------------------------------
Pre-tax income 230,352 450,368 48.9 -
Provision for income taxes 55,830 143,293 61.0 -
---------------------------------------------------------------------
Income from continuing operations 174,522 307,075 43.2 -
Income from discontinued
operations, net of tax 210,580 11,703 NM
---------------------------------------------------------------------
Income before cumulative effect 385,102 318,778 20.8 +
Cumulative effect of changes in
accounting principle, net of tax 1,345 -- NM
---------------------------------------------------------------------
Net income $ 386,447 $ 318,778 21.2 +
=======================
---------------------------------------------------------------------
Diluted earnings per share from
continuing operations $ 1.36 $ 2.38 42.9 -
Diluted earnings per share before
cumulative effect $ 3.01 $ 2.47 21.9 +
Diluted earnings per common share $ 3.02 $ 2.47 22.3 +
Dividends declared $ 1.35 $ 1.29
Diluted shares 127,962 129,135
SELECTED FINANCIAL RATIOS:
-------------------------
Return on average assets 1.34% 1.18%
Return on average shareholders'
equity 21.6 19.9
---------------------------------------------------------------------
A-2
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Quarterly Growth
(Unaudited)
Quarter Ended
September 30
------------------------ Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 6,803,461 $ 6,176,194 10.2 +
Real estate commercial 1,221,408 1,163,199 5.0 +
Real estate construction 2,575,590 1,735,883 48.4 +
---------------------------------------------------------------------
Total commercial loans 10,600,459 9,075,276 16.8 +
Retail:
Real estate residential 8,503,198 7,593,720 12.0 +
Real estate construction 2,065,849 1,643,874 25.7 +
Other retail 160,446 167,475 4.2 -
Credit card receivables 201,319 241,657 16.7 -
Real estate loans pledged
against other
collateralized
borrowings(a) 268,125 -- NM
---------------------------------------------------------------------
Total retail loans 11,198,937 9,646,726 16.1 +
---------------------------------------------------------------------
Total loans, net of
unearned income 21,799,396 18,722,002 16.4 +
Investment securities 3,805,160 2,934,030 29.7 +
Loans held for sale 4,201,949 6,936,767 39.4 -
Other earning assets 4,821,007 4,969,239 3.0 -
---------------------------------------------------------------------
Total earning assets 34,627,512 33,562,038 3.2 +
Cash and due from banks 816,342 769,813 6.0 +
Other assets 4,075,911 3,759,142 8.4 +
---------------------------------------------------------------------
Total assets $39,519,765 $38,090,993 3.8 +
========================----------
Certificates of deposit under
$100,000 and other time $ 2,873,451 $ 2,278,094 26.1 +
Other interest-bearing deposits 5,092,769 4,576,869 11.3 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 7,966,220 6,854,963 16.2 +
Demand deposits 1,762,753 1,941,952 9.2 -
Other noninterest-bearing deposits 3,502,833 3,717,097 5.8 -
---------------------------------------------------------------------
Total core deposits 13,231,806 12,514,012 5.7 +
Certificates of deposit
$100,000 and more 9,694,677 11,467,752 15.5 -
---------------------------------------------------------------------
Total deposits 22,926,483 23,981,764 4.4 -
Short-term borrowed funds 6,782,944 7,809,024 13.1 -
Term borrowings 5,265,288 2,374,568 121.7 +
Other collateralized borrowings(a) 273,035 -- NM
---------------------------------------------------------------------
Total long-term debt 5,538,323 2,374,568 133.2 +
Other liabilities 1,534,711 1,410,093 8.8 +
Preferred stock of subsidiary 295,274 295,312 --
Shareholders' equity 2,442,030 2,220,232 10.0 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $39,519,765 $38,090,993 3.8 +
========================
---------------------------------------------------------------------
(a) During first quarter 2006, FHN sold loans through an
on-balance sheet securitization, which is structured as a
financing for accounting purposes.
A-3
FIRST HORIZON NATIONAL CORPORATION
AVERAGE STATEMENTS OF CONDITION
Yearly Growth
(Unaudited)
Year-to-date
September 30
------------------------ Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 6,597,818 $ 5,852,796 12.7 +
Real estate commercial 1,235,278 1,085,278 13.8 +
Real estate construction 2,385,955 1,530,920 55.9 +
---------------------------------------------------------------------
Total commercial loans 10,219,051 8,468,994 20.7 +
Retail:
Real estate residential 8,558,577 7,505,108 14.0 +
Real estate construction 2,019,044 1,358,807 48.6 +
Other retail 162,513 163,103 .4 -
Credit card receivables 212,237 239,768 11.5 -
Real estate loans pledged
against other
collateralized
borrowings(a) 187,901 -- NM
---------------------------------------------------------------------
Total retail loans 11,140,272 9,266,786 20.2 +
---------------------------------------------------------------------
Total loans, net of
unearned income 21,359,323 17,735,780 20.4 +
Investment securities 3,282,819 2,887,228 13.7 +
Loans held for sale 4,531,952 6,108,545 25.8 -
Other earning assets 4,736,662 4,799,955 1.3 -
---------------------------------------------------------------------
Total earning assets 33,910,756 31,531,508 7.5 +
Cash and due from banks 813,790 742,495 9.6 +
Other assets 3,850,220 3,895,526 1.2 -
---------------------------------------------------------------------
Total assets $38,574,766 $36,169,529 6.6 +
========================
Certificates of deposit under
$100,000 and other time $ 2,752,943 $ 2,188,896 25.8 +
Other interest-bearing deposits 5,012,336 4,586,233 9.3 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 7,765,279 6,775,129 14.6 +
Demand deposits 1,764,200 1,854,753 4.9 -
Other noninterest-bearing deposits 3,363,135 3,352,841 .3 +
---------------------------------------------------------------------
Total core deposits 12,892,614 11,982,723 7.6 +
Certificates of deposit
$100,000 and more 9,723,236 10,728,885 9.4 -
---------------------------------------------------------------------
Total deposits 22,615,850 22,711,608 .4 -
Short-term borrowed funds 6,897,608 7,073,225 2.5 -
Term borrowings 4,649,203 2,524,437 84.2 +
Other collateralized borrowings (a) 191,891 -- NM
---------------------------------------------------------------------
Total long-term debt 4,841,094 2,524,437 91.8 +
Other liabilities 1,531,560 1,511,571 1.3 +
Preferred stock of subsidiary 295,274 207,886 42.0 +
Shareholders' equity 2,393,380 2,140,802 11.8 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $38,574,766 $36,169,529 6.6 +
========================
---------------------------------------------------------------------
(a) During first quarter 2006, FHN sold loans through an
on-balance sheet securitization, which is structured as a
financing for accounting purposes.
A-4
FIRST HORIZON NATIONAL CORPORATION
PERIOD-END STATEMENTS OF CONDITION
(Unaudited)
September 30
------------------------ Growth
(Thousands) 2006 2005 Rate (%)
---------------------------------------------------------------------
Loans, net of unearned income:
Commercial:
Commercial, financial and
industrial $ 6,945,207 $ 6,354,408 9.3 +
Real estate commercial 1,199,084 1,171,606 2.3 +
Real estate construction 2,660,415 1,849,075 43.9 +
---------------------------------------------------------------------
Total commercial loans 10,804,706 9,375,089 15.2 +
Retail:
Real estate residential 8,428,027 7,603,249 10.8 +
Real estate construction 2,096,440 1,814,632 15.5 +
Other retail 163,134 170,684 4.4 -
Credit card receivables 202,866 248,049 18.2 -
Real estate loans pledged
against other collateralized
borrowings(a) 259,232 -- NM
---------------------------------------------------------------------
Total retail loans 11,149,699 9,836,614 13.3 +
---------------------------------------------------------------------
Total loans, net of unearned
income 21,954,405 19,211,703 14.3 +
Investment securities 3,983,049 2,842,016 40.1 +
Loans held for sale 2,798,906 5,158,103 45.7 -
Other earning assets 4,522,968 3,992,226 13.3 +
---------------------------------------------------------------------
Total earning assets 33,259,328 31,204,048 6.6 +
Cash and due from banks 903,482 1,036,816 12.9 -
Discontinued assets 939,728 129,358 NM
Other assets 4,973,645 4,672,085 6.5 +
---------------------------------------------------------------------
Total assets $40,076,183 $37,042,307 8.2 +
========================
Certificates of deposit
under $100,000 and
other time $ 2,906,424 $ 2,338,365 24.3 +
Other interest-bearing deposits 4,998,956 4,620,547 8.2 +
---------------------------------------------------------------------
Total interest-bearing
core deposits 7,905,380 6,958,912 13.6 +
Demand deposits 2,449,540 2,630,914 6.9 -
Other noninterest-bearing deposits 3,009,395 3,182,293 5.4 -
---------------------------------------------------------------------
Total core deposits 13,364,315 12,772,119 4.6 +
Certificates of deposit
$100,000 and more 11,920,226 12,497,183 4.6 -
---------------------------------------------------------------------
Total deposits 25,284,541 25,269,302 .1 +
Short-term borrowed funds 4,190,719 4,482,503 6.5 -
Term borrowings 5,226,772 2,000,113 161.3 +
Other collateralized borrowings(a) 260,416 -- NM
---------------------------------------------------------------------
Total long-term debt 5,487,188 2,000,113 174.3 +
Discontinued liabilities 6,977 90,125 92.3 -
Other liabilities 2,300,960 2,612,653 11.9 -
Preferred stock of subsidiary 295,274 295,274 --
Shareholders' equity 2,510,524 2,292,337 9.5 +
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $40,076,183 $37,042,307 8.2 +
========================
---------------------------------------------------------------------
(a) During first quarter 2006, FHN sold loans through an
on-balance sheet securitization, which is structured as a
financing for accounting purposes.
A-5
FIRST HORIZON NATIONAL CORPORATION
ASSET QUALITY HIGHLIGHTS
(Unaudited)
(Thousands) 3Q06 2Q06 1Q06 4Q05 3Q05
---------------------------------------------------------------------
ALLOWANCE FOR
LOAN LOSSES:
Beginning
Reserve $199,835 $195,011 $189,705 $185,029 $169,697
Provision 23,694 18,653 17,799 16,175 22,608
Divestitures/
acquisitions (275) -- (1,195) (516) 1,902
Charge-offs (19,782) (17,518) (14,791) (14,586) (12,900)
Recoveries 3,357 3,689 3,493 3,603 3,722
---------------------------------------------------------------------
Ending
Balance $206,829 $199,835 $195,011 $189,705 $185,029
---------------------------------------------------------------------
Reserve for off-
balance sheet
commitments $ 9,230 $ 9,250 $ 9,420 $ 10,650 $ 9,034
Total of
allowance for
loan losses and
reserve for off-
balance sheet
commitments $216,059 $209,085 $204,431 $200,355 $194,063
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NONPERFORMING
ASSETS:
RETAIL/COMMERCIAL
BANKING:
Nonperforming
loans $ 63,956 $ 61,358 $ 49,332 $ 40,771 $ 39,236
Foreclosed
real estate 29,947 24,425 19,556 18,932 19,875
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Total Retail/
Commercial
Banking 93,903 85,783 68,888 59,703 59,111
---------------------------------------------------------------------
MORTGAGE BANKING:
Nonperforming
loans - held
for sale 10,488 14,976 16,000 11,488 11,868
Foreclosed real
estate 13,598 11,899 9,538 8,478 7,981
---------------------------------------------------------------------
Total Mortgage
Banking 24,086 26,875 25,538 19,966 19,849
---------------------------------------------------------------------
Total non-
performing
assets $117,989 $112,658 $ 94,426 $ 79,669 $ 78,960
====================================================
Loans past due
90 days or
more(a) $160,662 $165,759 $187,974 $213,658 $193,156
Guaranteed
portion of loans
past due 90 days
or more(a) 130,373 136,529 159,680 178,838 166,891
Foreclosed real
estate from GNMA
loans(b) 21,679 24,253 19,865 -- --
Period-end loans,
net of unearned
income
(millions) $ 21,954 $ 21,700 $ 21,187 $ 20,601 $ 19,212
Insured loans 730 753 812 827 667
---------------------------------------------------------------------
Loans excluding
insured loans $ 21,224 $ 20,947 $ 20,375 $ 19,774 $ 18,545
====================================================
Off-balance sheet
commitments
(millions)(c) $ 7,416 $ 7,305 $ 7,787 $ 9,091 $ 8,751
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(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)
3Q06 2Q06 1Q06 4Q05 3Q05
---------------------------------------------------------------------
FHN CONSOLIDATED:
Nonperforming loans
ratio(a) .29% .28% .23% .20% .20%
Nonperforming assets
ratio(b) .49 .45 .37 .33 .35
Allowance to total
loans .94 .92 .92 .92 .96
Allowance to loans
excluding insured
loans .97 .95 .96 .96 1.00
Allowance to non-
performing loans(c) 323.39 325.69 395.30 465.29 471.58
Allowance to non-
performing assets(d) 192.40 204.58 248.66 278.24 275.78
Net charge-off
ratio(e) .30 .26 .22 .22 .20
RETAIL/COMMERCIAL
BANKING:
Nonperforming assets
ratio(b) .43% .40% .33% .29% .31%
Allowance to non-
performing assets 222.47 232.95 283.08 317.75 313.02
MORTGAGE BANKING:
Nonperforming assets
ratio(f) .02% .03% .03% .02% .02%
---------------------------------------------------------------------
(a) Ratio is nonperforming loans in the loan portfolio to total
loans
(b) Ratio is nonperforming assets related to the loan portfolio to
total loans plus foreclosed real estate and other assets
(c) Ratio is allowance to nonperforming loans in the loan
portfolio
(d) Ratio is allowance to nonperforming assets related to the loan
portfolio
(e) Ratio is annualized net charge-offs to average total loans
(f) Ratio is nonperforming assets to unpaid principal balance of
servicing portfolio
A-7
FIRST HORIZON NATIONAL CORPORATION
BUSINESS SEGMENT HIGHLIGHTS
(Unaudited)
(Thousands) 3Q06 2Q06 1Q06 4Q05 3Q05
---------------------------------------------------------------------
RETAIL/COMMERCIAL
BANKING
Total revenues(a) $342,396 $342,545 $331,356 $341,409 $331,459
Provision for loan
losses 23,550 18,361 18,026 15,897 22,428
Noninterest expenses 204,109 211,873 215,555 203,154 199,653
------------------------------------------------
Pre-tax income 114,737 112,311 97,775 122,358 109,378
Provision for income
taxes 35,207 29,190 27,897 36,109 33,008
------------------------------------------------
Income from continuing
operations 79,530 83,121 69,878 86,249 76,370
Loss from discontinued
operations, net
of tax (69) 376 210,273 5,369 4,830
------------------------------------------------
Income before
cumulative effect 79,461 83,497 280,155 91,618 81,200
Cumulative effect of
changes in accounting
principle, net of tax -- -- 522 (3,098) --
------------------------------------------------
Net income $ 79,461 $ 83,497 $280,673 $ 88,520 $ 81,200
MORTGAGE BANKING
Total revenues(a) $118,189 $139,072 $120,119 $154,521 $193,023
Provision for loan
losses 144 292 (227) 278 180
Noninterest expenses 143,601 109,581 125,699 115,261 132,253
------------------------------------------------
Pre-tax income/
(loss) (25,556) 29,199 (5,353) 38,982 60,590
Provision/(benefit)
for income taxes (10,554) 10,042 (2,114) 12,133 21,881
------------------------------------------------
Income/(loss) before
cumulative effect (15,002) 19,157 (3,239) 26,849 38,709
Cumulative effect of
changes in accounting
principle, net of tax -- -- 414 -- --
------------------------------------------------
Net income/(loss) $(15,002) $ 19,157 $ (2,825) $ 26,849 $ 38,709
CAPITAL MARKETS
Total revenues(a) $100,109 $ 96,464 $ 93,340 $ 79,005 $ 78,497
Noninterest expenses 86,276 80,553 86,379 75,759 76,093
------------------------------------------------
Pre-tax income 13,833 15,911 6,961 3,246 2,404
Provision for income
taxes 4,240 7,023 1,745 1,076 481
------------------------------------------------
Income before
cumulative effect 9,593 8,888 5,216 2,170 1,923
Cumulative effect of
changes in accounting
principle, net of tax -- -- 179 -- --
------------------------------------------------
Net income $ 9,593 $ 8,888 $ 5,395 $ 2,170 $ 1,923
CORPORATE
Total revenues(a) $ 12,312 $ 7,504 $(93,350) $ 875 $ 3,780
Noninterest expenses 22,371 17,979 15,582 19,118 18,176
------------------------------------------------
Pre-tax loss (10,059) (10,475) (108,932) (18,243) (14,396)
Income tax benefit (3,117) (3,242) (40,487) (6,623) (5,508)
------------------------------------------------
Loss before cumulative
effect (6,942) (7,233) (68,445) (11,620) (8,888)
Cumulative effect of
changes in accounting
principle, net of tax -- -- 230 -- --
------------------------------------------------
Net loss $ (6,942) $ (7,233) $(68,215) $(11,620) $ (8,888)
TOTAL CONSOLIDATED
Total revenues(a) $573,006 $585,585 $451,465 $575,810 $606,759
Provision for loan
losses 23,694 18,653 17,799 16,175 22,608
Total noninterest
expenses 456,357 419,986 443,215 413,292 426,175
------------------------------------------------
Consolidated pre-tax
income/(loss) 92,955 146,946 (9,549) 146,343 157,976
Provision/(benefit)
for income taxes 25,776 43,013 (12,959) 42,695 49,862
------------------------------------------------
Income from continuing
operations 67,179 103,933 3,410 103,648 108,114
Loss from discontinued
operations, net
of tax (69) 376 210,273 5,369 4,830
------------------------------------------------
Income before
cumulative effect 67,110 104,309 213,683 109,017 112,944
Cumulative effect of
changes in accounting
principle, net
of tax -- -- 1,345 (3,098) --
------------------------------------------------
Net income $ 67,110 $104,309 $215,028 $105,919 $112,944
------------------------------------------------
---------------------------------------------------------------------
(a) Includes noninterest income and net interest income/(expense)
A-8