First Horizon National Corporation — 2017 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2017. First Horizon is a bank holding company operating through regional banking, fixed income, corporate, and non-strategic segments. It reported $41.4 billion in consolidated assets at year-end. Capital Bank Financial Corp. was acquired on November 30, 2017; its year-end assets and liabilities are included, but its earnings contributed for only December.
Financial performance and position
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Net interest income | $842.3 million | $729.1 million | Up about 16% |
| Noninterest income | $490.2 million | $552.4 million | Down about 11%; filing cites challenging fixed-income markets |
| Net interest income plus noninterest income | $1,332.5 million | $1,281.5 million | Up about 4% |
| Net income available to common shareholders | $159.3 million | $220.8 million | Down about 28%; fourth-quarter consolidated net loss included significant tax-reform effects |
| Provision for loan losses | $0 | $11.0 million | Net charge-offs were $12.5 million in 2017 |
| Provision for litigation and regulatory matters | $40.5 million | $30.5 million | Increased year over year |
| Mortgage repurchase provision | $(22.5) million | $(32.7) million | Negative provision reflects a benefit/release |
| Total loans at year-end | $27.7 billion | $19.6 billion | Up about 41%, largely reflecting Capital Bank |
| Total deposits at year-end | $30.6 billion | $22.7 billion | Up about 35%, largely reflecting Capital Bank |
| Total term borrowings at year-end | $1.2 billion | $1.0 billion | Up about 17% |
| Total shareholders’ equity | $4.6 billion | $2.7 billion | Up substantially, including acquisition-related effects |
The filing text provided does not give a clear value for annual cash flow, net interest margin, or expense ratios; detailed statements and discussion are incorporated by reference to the 2017 Annual Report. The filing reports an $82.0 million fourth-quarter charge related to the Tax Cuts and Jobs Act, primarily reflecting reduced deferred-tax-asset value. It also states that the tax adjustments contributed to a consolidated fourth-quarter net loss but does not provide the quarter’s loss amount in the supplied text.
Material changes and business developments
- Capital Bank Financial Corp., described as a roughly $10 billion banking organization with more than 150 branches, was acquired November 30, 2017. Systems integration was expected to be completed in the second quarter of 2018.
- Other 2017 acquisitions included Coastal Securities and Professional Mortgage Company.
- Year-end loan and deposit growth principally reflects the Capital Bank transaction; the filing cautions that 2017 average balance data are substantially below year-end balances because the acquisition closed late in the year.
- Regional banking represented 83% of 2017 consolidated revenue, compared with 77% in 2016. Fixed income represented 18%, compared with 22%.
- Fixed-income revenue weakened amid challenging market conditions. Management also cited loan growth and modest interest-rate increases as drivers of higher net interest income.
Liquidity, capital, outlook, and risks
- At December 31, 2017, the Bank’s available capacity to pay dividends under applicable restrictions was negative $156.7 million; as of January 1, 2018, it could declare approximately $51.1 million in dividends without prior regulatory approval. Parent-company dividends and debt service depend substantially on Bank distributions.
- Year-end capital ratios were above stated regulatory minimums. First Horizon’s Common Equity Tier 1, Tier 1, total capital, and leverage ratios were 8.88%, 9.83%, 11.10%, and 10.31%, respectively. The Bank’s corresponding ratios were 9.28%, 10.12%, 10.74%, and 10.70%.
- Management described the balance sheet as asset-sensitive: rising rates may benefit results if deposit costs rise more slowly than asset yields, but a flat yield curve, deposit outflows, and uneven rate changes could limit benefits or pressure margins. Capital Bank slightly moderated asset sensitivity.
- No quantified earnings or revenue guidance is provided in the supplied filing text. Management identified continued organic growth, disciplined expense control, customer service, technology investment, and selective acquisitions as strategic priorities.
- Material risks include legacy mortgage repurchase, servicing, and litigation exposures; concentration in financial-services-related commercial lending; credit deterioration if economic or collateral conditions weaken; integration and execution risk from acquisitions; cybersecurity and operational disruptions; regulatory changes; and competition from technology-enabled providers.
- The Tax Reform Law may provide longer-term benefits, but its effects remained uncertain. The filing highlights the immediate deferred-tax charge, limits on interest deductions, and possible effects on mortgage demand and home values.
Important facts for investors to verify
- Review the incorporated annual report for full quarterly results, cash-flow statements, net interest margin, operating expenses, and segment profitability; these details are not clear in the supplied filing text.
- Assess the final purchase accounting and subsequent contribution of Capital Bank, as well as whether systems integration was completed on schedule and at expected cost.
- Track the Bank’s dividend capacity, capital ratios, and the parent’s ability to fund dividends and debt service.
- Examine updates to legacy mortgage, servicing, litigation, and regulatory contingencies, including whether exposure exceeds recorded reserves.
- Monitor commercial loan concentrations, asset quality, the allowance for loan losses, and the effect of interest-rate and yield-curve changes.