First Horizon National Corporation 2009 10-K Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2009. First Horizon National Corporation is a Tennessee-based bank holding company and financial holding company. As of year-end 2009, it ranked 1st in total assets among Tennessee-headquartered bank holding companies with $26.1 billion in consolidated assets. The company operates through five segments: Regional Banking, Capital Markets, Mortgage Banking, National Specialty Lending, and Corporate. Following the 2007-2008 recession, the company significantly restructured, exiting national mortgage and specialty lending businesses outside its Tennessee footprint to focus on regional banking and capital markets.
Key Financial Metrics
| Metric (in millions) | 2009 | 2008 |
|---|---|---|
| Net Interest Income | $776.5 | $895.1 |
| Noninterest Income | $1,233.4 | $1,450.4 |
| Provision for Loan Losses | $880.0 | $1,080.0 |
| Total Assets | $26,068.7 | $31,022.0 |
| Total Deposits | $14,867.2 | $14,241.8 |
| Total Long-Term Debt | $2,891.1 | $4,767.7 |
| Total Shareholders' Equity | $3,302.5 | $3,574.6 |
| Preferred Stock (TARP CPP) | $798.7 | $782.7 |
Capital Ratios (Dec 31, 2009): Total Capital Ratio: 21.92%; Tier 1 Capital Ratio: 16.39%; Leverage Ratio: 13.36%. The Bank is classified as "well capitalized."
Revenue Mix (2009): Approximately 61% fee income and 39% net interest income. Regional Banking contributed 41% of revenues, while Capital Markets contributed 36%.
Material Changes vs. Prior Period
- Asset Contraction: Total assets decreased by approximately $4.95 billion (16%) from 2008 to 2009, reflecting the continued divestiture of national businesses and balance sheet management.
- Loan Loss Provision: The provision for loan losses decreased by $200 million (18.5%) to $880.0 million, though it remains elevated compared to pre-recession levels.
- Revenue Decline: Net interest income fell 13.2% due to margin compression from low interest rates. Noninterest income declined 15% due to reduced activity in capital markets and mortgage servicing.
- Debt Reduction: Total long-term debt decreased significantly by $1.88 billion (39.4%) as the company paid down obligations and reduced reliance on short-term funding.
- Deposit Growth: Total deposits increased by $625 million (4.4%) despite the economic downturn, aided by temporary increases in FDIC insurance limits.
Outlook, Risks, and Contingencies
Guidance and Outlook: The filing does not provide specific numerical guidance for 2010. Management expects the recessionary environment to persist, with continued focus on credit management, efficiency improvements, and building regional banking and capital markets businesses. The company anticipates that legacy assets from exited national businesses will continue to generate losses, though at a diminishing rate over time.
Key Risks and Contingencies:
- Credit Risk: Elevated default rates and loss severities in legacy loan portfolios, particularly in residential real estate and construction loans.
- TARP Restrictions: Participation in the Capital Purchase Program (CPP) restricts executive compensation, prohibits common cash dividends without Treasury approval, and limits share repurchases.
- Liquidity and Funding: Reliance on government facilities (TAF, FHLB) and deposits; potential for deposit run-off if FDIC insurance limits revert to pre-2008 levels.
- Regulatory Changes: Potential impact of new consumer protection legislation (e.g., Consumer Finance Protection Agency) and state enforcement actions following the Cuomo v. ClearingHouse Supreme Court decision.
- Dividend Restrictions: The Bank cannot legally declare cash dividends to the Corporation without regulatory approval due to accumulated losses.
Investor Verification Checklist
- Verify the adequacy of the Allowance for Loan Losses given the high provision levels and legacy asset exposure.
- Confirm the status of TARP preferred stock redemption and the timeline for removing associated compensation and dividend restrictions.
- Assess the impact of interest rate fluctuations on net interest margin, particularly given the low-rate environment.
- Review the repurchase and make-whole reserves for legacy mortgage loans sold to third parties.
- Monitor regulatory capital ratios to ensure continued "well capitalized" status amidst potential future losses.
- Check for updates on litigation risks related to lender liability and distressed counterparties.