First Horizon National Corporation (FHN) — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. This is an annual filing, not a standalone fourth-quarter report. The company is a Memphis-based bank holding company operating principally through First Tennessee Bank and FTN Financial.
Financial performance and condition
Amounts below are in millions of dollars unless stated otherwise. The filing’s full financial statements and management discussion are incorporated by reference from the shareholder annual report; several detailed measures are not present in the supplied filing text.
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Net interest income | $730.8 | $776.5 | Down 5.9% |
| Provision for loan losses | $270.0 | $880.0 | Down $610.0 |
| Noninterest income | $955.7 | $1,254.8 | Down 23.8% |
| Net interest income plus noninterest income | $1,686.5 | $2,031.3 | Down 17.0% |
| Total assets, at year-end | $24,699.0 | $26,068.7 | Down 5.3% |
| Total deposits, at year-end | $15,208.2 | $14,867.2 | Up 2.3% |
| Total long-term debt, at year-end | $3,228.1 | $2,891.1 | Up 11.7% |
| Total liabilities, at year-end | $22,020.9 | $22,766.2 | Down 3.3% |
| Total shareholders’ equity, at year-end | $2,678.0 | $3,302.5 | Down 18.9% |
| Commercial and retail loans, at year-end | $16,782.6 | $18,123.9 | Down 7.4% |
- The company reported returning to profitability in 2010, but the supplied text does not provide a clear net income, earnings-per-share, or cash-flow value.
- Net interest margin and other margin measures are not stated in the supplied text. The company says approximately 57% of 2010 consolidated revenue came from fees and other noninterest income and 43% from net interest income.
- At year-end, the Bank reported $24.5 billion of assets, $15.5 billion of deposits, and $16.1 billion of net loans. The consolidated loan portfolio table reports a different loan measure and amount.
- Regulatory capital was substantial: consolidated total capital ratio 18.65%, Tier 1 ratio 13.99%, and leverage ratio 10.96%. The Bank qualified as “well capitalized.”
Material changes versus 2009
- Credit-loss provisioning fell sharply from $880 million to $270 million. Management described credit quality as improving overall in 2010, while emphasizing continuing portfolio stress and quarter-to-quarter volatility.
- Net interest income and noninterest income both declined; the latter fell more sharply. Segment revenue mix shifted toward regional banking: 52% in 2010 versus 44% in 2009. Capital markets represented 26% versus 32%, and non-strategic businesses 18% versus 21%.
- Assets and loans continued to contract as the company worked down legacy portfolios and focused on its Tennessee regional banking franchise and capital markets business. Deposits increased.
- FHN raised common equity and senior debt during 2010, repaid the U.S. Treasury’s TARP preferred stock, and reported no preferred stock remaining in the CPP series at year-end. It issued $500 million of senior notes late in the year.
Outlook, risks, and unusual items
- Management expected a mild economic recovery, but warned the expectation might not hold. Income-producing commercial real estate remained stressed, and management expected industry conditions to remain difficult into 2011.
- The company retained substantial legacy loans, mortgage servicing rights, and obligations from exited national mortgage and specialty-lending businesses. Management warned that mortgage repurchase claims, private mortgage insurance rescissions, foreclosure-related matters, and litigation could increase; reserves for GSE repurchase losses might be inadequate.
- The subservicing agreement for retained mortgage servicing was due to expire in 2011. Management expected a replacement arrangement could cost substantially more than the existing contract.
- The Dodd-Frank Act and related rulemaking were expected to raise compliance and other costs and could constrain revenues. The company highlighted potential debit-card interchange fee reductions, higher deposit-insurance costs, consumer-finance regulation, and future capital-rule changes. It estimated the proposed interchange cap could put about $30 million of Bank revenue at risk.
- Funding risks include market access, deposit shifts, ratings changes, and potential derivative collateral or settlement demands. At year-end, the company said its unsecured senior debt ratings remained investment grade but were at or near the lowest investment-grade levels.
- The Bank could not legally declare cash dividends without regulatory approval at year-end. The company resumed a common cash dividend in January 2011 at one cent per share; management said the rate could remain muted until earnings became stronger and less volatile.
- Other notable risks include interest-rate and yield-curve movements, mortgage servicing right valuation, operational and outsourcing exposures, and possible increases in regulatory capital requirements. The company cited $200 million of trust preferred securities that would be excluded from Tier 1 capital after a phase-in period.
Most important facts for investors to verify
- Review the incorporated annual report financial statements for exact net income, diluted EPS, operating cash flows, net interest margin, credit-quality ratios, and detailed liquidity measures; these values are not clear in the supplied filing text.
- Assess whether lower loan-loss provisions reflect durable credit improvement, particularly in income-producing commercial real estate and legacy national lending portfolios.
- Track mortgage repurchase and foreclosure claims, private mortgage insurance rescissions, reserve adequacy, and any resulting litigation or cash exposure.
- Confirm the actual cost and revenue effects of new mortgage subservicing, regulatory changes, interchange-fee rules, and deposit-insurance assessments.
- Monitor regulatory approval limits on Bank dividends, capital requirements, funding access, and the sustainability of the reinstated one-cent common dividend.