First Horizon National Corp. Reports Operating Results (10-Q)
The First Horizon National family of companies provides financial services to individual and business customers through: First Horizon Home Loans FTN Financial First Tennessee Bank and First Horizon Merchant Services. First Horizon National Corp. has a market cap of $2.65 billion; its shares were traded at around $12.1 with and P/S ratio of 1.1. First Horizon National Corp. had an annual average earning growth of 1.4% over the past 10 years. Highlight of Business Operations:The Regional Banking segment had a pre-tax loss of $27.5 million in third quarter 2009 compared to pre-tax income of $4.1 million in third quarter 2008. Total revenues decreased $10.8 million to $205.4 million in third quarter 2009. The provision for loan losses increased to $63.1 million in third quarter 2009 from $58.2 million in third quarter 2008 primarily due to deterioration in the Income CRE portfolio.
Pre-tax income increased from a loss of $5.6 million in third quarter 2008 to income of $10.4 million in third quarter 2009 with total revenues of $151.1 million in third quarter 2009 compared to $109.0 million in third quarter 2008. In third quarter, FHN contracted to sell Capital Markets institutional equity research group. Accordingly, results of these operations are reflected in discontinued operations, net of tax for all periods presented. In third quarter 2009, Capital Markets reported an after-tax net loss from discontinued operations of $1.2 million compared with a loss of $1.5 million in the prior year.
The third quarter 2009 pre-tax income was $32.3 million compared with $44.4 million in third quarter 2008 and total revenues decreased by $69.2 million to $68.6 million in third quarter 2009. Net interest income decreased to $7.8 million in third quarter 2009 from $25.4 million in third quarter 2008 due to the large decline in the average balance of the mortgage warehouse as a result of the sale of national mortgage origination offices to MetLife. The provision for loan losses decreased $14.7 million as performance in Mortgage Bankings permanent mortgage portfolio improved.
Noninterest income was $60.8 million in third quarter 2009 compared to $112.3 million in third quarter 2008. Total servicing income decreased $32.2 million to $48.4 million in third quarter 2009 primarily from a decline in the size of the servicing portfolio and volatility associated with hedging the Mortgage Servicing Rights (MSR). Servicing fees were down $20.2 million consistent with the decline in the size of the servicing portfolio. Net hedging gains were $30.8 million in 2009 compared to $50.8 million in 2008 due to a narrowing of spreads between mortgage and swap rates and a smaller MSR asset. Net revenue from origination activity decreased to $9.7 million in third quarter 2009 from $19.8 million in third quarter 2008. Third quarter 2009 origination income included a $5 million positive fair value adjustment to the legacy mortgage warehouse. Origination activity has significantly declined in comparison to third quarter 2008 due to the sale of national mortgage origination platform. Currently, FHN only originates mortgage loans in and around its Tennessee market.
Corporate reported pre-tax income of $16.7 million in third quarter 2009 compared to a pre-tax loss $33.9 million in third quarter 2008. Noninterest income was $24.7 million in third quarter 2009 compared to $2.2 million in third quarter 2008. Deferred compensation income increased $10.2 million, which is mirrored by a corresponding increase in personnel expense. Both periods included gains on the repurchase of bank notes. Gains in third quarter 2009 were $12.8 million compared with $18.9 million in 2008. In 2008, restructuring charges recorded in noninterest income included a $17.5 million loss on the sale of the national mortgage origination and servicing platform.
Noninterest expense decreased $23.6 million to $17.2 million in third quarter 2009 from $40.8 million in 2008. Charges within noninterest expense related to restructuring, repositioning, and efficiency initiatives decreased by $13.8 million from 2008. Additionally, $14.2 million of restructuring charges (primarily includes a $14.0 million goodwill impairment) are included in discontinued operations and relates to the agreement to sell Capital Markets institutional equity research business. Third quarter 2008 included an $11.0 million increase to the contingent liability for certain Visa legal matters while $7.0 million of the liability was reversed in third quarter 2009.
Read the The complete ReportFHN is in the portfolios of HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, John Paulson of Paulson & Co., Richard Pzena of Pzena Investment Management LLC.