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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported): July 17, 2018
 
 
First Horizon National Corporation
(Exact Name of Registrant as Specified in Charter)
 
 
TN
001-15185
62-0803242
(State or other jurisdiction
(Commission
(IRS Employer
of incorporation)
File Number)
Identification No.)
 
165 MADISON AVENUE
 
MEMPHIS, TENNESSEE
38103
(Address of principal executive office)
(Zip Code)
 
Registrant’s telephone number, including area code: (901) 523-4444
 
 
(Former name or former address, if changed from last report)
 

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).
 
 
 
o Emerging growth company
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


 
 
 









ITEM 2.02. Results of Operations and Financial Condition.
ITEM 7.01. Regulation FD Disclosure.
 
Furnished as Exhibit 99.1 is a copy of the First Horizon National Corporation (“FHN”) Financial Supplement and Exhibit 99.2 is a copy of the Investor Slide Presentation for the quarter ended June 30, 2018, which was released today.
 
The foregoing information is furnished pursuant to Item 2.02, “Results of Operations and Financial Condition” and Item 7.01, “Regulation FD Disclosure.” The exhibit speaks as of the date thereof and FHN does not assume any obligation to update in the future the information therein.
 
Use of Non-GAAP Measures and Regulatory Measures that are not GAAP in the Exhibits
 
Certain measures are included in the exhibits that are “non-GAAP,” meaning (under U.S. financial reporting rules) they are not presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and also are not codified in the U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the financial condition, capital position, and financial results of FHN and its business segments. Non-GAAP measures are reported to FHN’s management and directors through various internal reports.
 
Presentation of regulatory measures, some of which follow regulatory definitions rather than GAAP, provides a meaningful base for comparability to other financial institutions subject to the same regulations as FHN. Such measures are used by the various banking regulators in reviewing the performance, stability, and capital adequacy of financial institutions they regulate. Although not GAAP terms, these regulatory measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards. Regulatory measures used in the exhibits include: common equity tier 1 capital, generally defined as common equity less goodwill, other intangibles, and certain other required regulatory deductions; tier 1 capital, generally defined as the sum of core capital (including common equity and instruments that cannot be redeemed at the option of the holder) adjusted for certain items under risk based capital regulations; risk weighted assets (“RWA”), which is a measure of total on- and off-balance sheet assets adjusted for credit and market risk, used to determine regulatory capital ratios; and pre-provision net revenue (“PPNR”), calculated by adding the provision/(provision credit) for loan losses to income before income taxes, excluding securities gains/(losses).
 
The non-GAAP measures presented in the exhibits include: return on average tangible common equity (“ROTCE”); tangible common equity (“TCE”) to tangible assets (“TA”); tangible book value ("TBV") per common share; adjusted ROTCE; adjusted earnings per share measures; and various consolidated and segment results and performance measures and ratios adjusted for notable items identified in the exhibits.
 
Reconciliations of non-GAAP to GAAP measures and presentation of the most comparable GAAP items are presented near the end (immediately before the Glossary) of the Financial Supplement and at the end of the Investor Slide Presentation.

Forward-Looking Statements

This financial supplement and investor slide presentation contain 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, recent and future legislative and regulatory developments, natural disasters, and items mentioned in this financial supplement, investor slide presentation and in FHN's most recent earnings 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 forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements to reflect future events or developments.












ITEM 9.01. Financial Statements and Exhibits.
 
(d)
Exhibits

The following exhibits are furnished pursuant to Items 2.02 and 7.01, are not to be considered “filed” under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and shall not be incorporated by reference into any of FHN’s previous or future filings under the Securities Act of 1933, as amended, or the Exchange Act.
 
Exhibit #
 
Description
 
 
 
 
 


















































SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
First Horizon National Corporation
 
 
 
 
 
 
Date: July 17, 2018
By: 
/s/ William C. Losch III
 
 
William C. Losch III
 
 
Executive Vice President and Chief Financial Officer















































(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 FINANCIAL SUPPLEMENT)

Exhibit




1







394242339_fhna06.jpg




SECOND QUARTER 2018
 
FINANCIAL SUPPLEMENT

 
If you need further information, please contact:
Aarti Bowman, Investor Relations
901-523-4017
[email protected]




FHN TABLE OF CONTENTS
 
 
 
Page
 
 
First Horizon National Corporation Segment Structure
3
 
 
Performance Highlights
4
 
 
Consolidated Results
 
       Income Statement
 
             Income Statement
6
             Other Income and Other Expense
7
       Balance Sheet
 
            Period End Balance Sheet
8
            Average Balance Sheet
9
            Net Interest Income
10
            Average Balance Sheet: Yields and Rates
11
 
 
Capital Highlights
12
 
 
Business Segment Detail
 
         Segment Highlights
13
         Regional Banking
14
         Fixed Income and Corporate
15
         Non-Strategic
16
 
 
Asset Quality
 
          Asset Quality: Consolidated
17
          Asset Quality: Regional Banking and Corporate
19
          Asset Quality: Non-Strategic
20
 
 
Non-GAAP to GAAP Reconciliation
21
 
 
Glossary of Terms
22
 
 
Other Information
This financial supplement 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, recent and future legislative and regulatory developments, natural disasters, and items mentioned in this financial supplement and in First Horizon National Corporation’s (“FHN”) most recent earnings 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 forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements to reflect future events or developments.
 
Use of Non-GAAP Measures and Regulatory Measures that are not GAAP
Certain measures are included in this financial supplement that are “non-GAAP,” meaning (under U.S. financial reporting rules) they are not presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and also are not codified in U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the financial condition, capital position, and financial results of FHN and its business segments. Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports.
 
Presentation of regulatory measures, some of which follow regulatory definitions rather than GAAP, provides a meaningful base for comparability to other financial institutions subject to the same regulations as FHN. Such measures are used by the various banking regulators in reviewing the performance, stability, and capital adequacy of financial institutions they regulate. Although not GAAP terms, these regulatory measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards. Regulatory measures used in this financial supplement include: common equity tier 1 capital, generally defined as common equity less goodwill, other intangibles, and certain other required regulatory deductions; tier 1 capital, generally defined as the sum of core capital (including common equity and instruments that cannot be redeemed at the option of the holder) adjusted for certain items under risk based capital regulations; risk weighted assets (“RWA”), which is a measure of total on- and off-balance sheet assets adjusted for credit and market risk, used to determine regulatory capital ratios; and pre-provision net revenue (“PPNR”), calculated by adding the provision/(provision credit) for loan losses to income before income taxes, excluding securities gains/(losses).
 
The non-GAAP measures presented in this financial supplement are return on average tangible common equity (“ROTCE”), tangible common equity (“TCE”) to tangible assets (“TA”), and tangible book value ("TBV") per common share.
 
Refer to the tabular reconciliation of non-GAAP to GAAP measures and presentation of the most comparable GAAP items on page 21 of this financial supplement.

2





FIRST HORIZON NATIONAL CORPORATION SEGMENT STRUCTURE
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 394242339_slide1a05.jpg

3




FHN PERFORMANCE HIGHLIGHTS
 
 
Summary of Second Quarter 2018 Notable Items
Segment
 
Item
 
Income Statement
 
Amount Favorable/
(Unfavorable)
 
Comments
Corporate
 
Acquisition and integration expenses
 
Noninterest expense: various
 
$(43.2) million
 
Pre-tax acquisition- and integration-related expenses primarily associated with the Capital Bank Financial Corp. ("CBF") acquisition
 
 
 
 
 
 
 
 
 
Corporate
 
Visa derivative valuation
 
Noninterest expense: other
 
$(4.1) million
 
Pre-tax negative valuation adjustments associated with derivatives related to prior sales of Visa Class B shares
 
 
 
 
 
 
 
 
 
Second Quarter 2018 vs. First Quarter 2018

Consolidated
Net income available to common shareholders was $81.6 million, or $.25 per diluted share in 2Q18 compared to $90.6 million, or $.27 per diluted share in 1Q18
Net interest income (“NII”) increased to $310.9 million in 2Q18 from $301.2 million in 1Q18
The increase in NII in 2Q18 was primarily due to higher loan accretion associated with the CBF acquisition, an additional day relative to 1Q18, and increases in loan fees and cash basis interest income
Net Interest Margin (“NIM”) improved to 3.53 percent in 2Q18 from 3.43 percent in 1Q18
The improvement in NIM was also largely the result of higher loan accretion associated with the CBF acquisition, and to a lesser extent higher loan fees and cash basis interest income
The provision for loan losses was $0 in 2Q18 compared to a credit of $1.0 million in 1Q18
Noninterest income (including securities gains) was $127.5 million in 2Q18 compared to $136.0 million in 1Q18 primarily driven by lower fixed income sales revenues
Noninterest expense was $332.8 million in 2Q18 compared to $313.3 million in 1Q18
The expense increase was largely driven by an $11.8 million increase in acquisition- and integration-related expenses associated with the CBF acquisition and $4.1 million of valuation adjustments associated with derivatives related to prior sales of Visa Class B shares
Acquisition- and integration-related expenses in 2Q18 are primarily related to contract termination charges, professional fees, fees related to severance and retention, lease buyouts and asset impairments
Provision for income taxes decreased to $19.7 million in 2Q18 from $29.9 million in 1Q18
2Q18 includes $3.0 million of favorable discrete items related to CBF purchase accounting adjustments and $1.1 million of favorable discrete items related to state audits
1Q18 includes $1.6 million of unfavorable discrete items related to CBF purchase accounting adjustments

Regional Banking
Pre-tax income increased to $168.9 million in 2Q18 from $167.0 million in 1Q18; PPNR was $175.0 million and $172.4 million in 2Q18 and 1Q18, respectively
Average loans increased to $26.0 billion in 2Q18 from $25.7 billion in 1Q18; period-end loans increased 2 percent to $26.5 billion in 2Q18
Average deposits increased to $27.4 billion in 2Q18 from $27.1 billion in 1Q18; period-end deposits increased 1 percent to $27.9 billion in 2Q18
NII increased to $308.9 million in 2Q18 from $298.7 million in 1Q18 primarily due to loan accretion associated with the CBF acquisition, an additional day relative to 1Q18, and increases in loan fees and cash basis interest income
Provision expense was $6.1 million in 2Q18 compared to $5.3 million in 1Q18
Noninterest income was $78.6 million and $78.9 million in 2Q18 and 1Q18, respectively
Noninterest expense was $212.4 million in 2Q18 compared to $205.2 million in 1Q18

Fixed Income
Pre-tax loss was $.8 million in 2Q18 compared to pre-tax income of $3.5 million in 1Q18
NII increased to $9.2 million in 2Q18 from $8.5 million in 1Q18
Noninterest income decreased to $38.4 million in 2Q18 from $45.6 million in 1Q18
Fixed income product revenue was $29.9 million in 2Q18 compared to $38.0 million in 1Q18
Fixed income product average daily revenue (“ADR”) was $468 thousand and $624 thousand in 2Q18 and 1Q18, respectively
Other product revenue increased to $8.4 million in 2Q18 from $7.6 million in 1Q18 due to increases in fees from loan and derivative sales
Noninterest expense was $48.3 million in 2Q18 compared to $50.5 million in 1Q18 driven by a decrease in variable compensation expense coupled with a decrease in FICA

4




FHN PERFORMANCE HIGHLIGHTS (continued)
 
 
Second Quarter 2018 vs. First Quarter 2018 (continued)
 
 
 
 
Corporate
Pre-tax loss was $71.2 million in 2Q18 compared to pre-tax loss of $54.8 million in 1Q18
NII was negative $14.0 million and negative $13.2 million in 2Q18 and 1Q18, respectively
Estimated effective duration of the securities portfolio was 4.6 years in 2Q18 and 4.5 years in 1Q18
Noninterest income (including net securities gains) was $8.8 million in 2Q18 compared to $9.5 million in 1Q18
2Q18 includes $2.5 million of BOLI policy gains
1Q18 includes a $3.3 million gain on the sale of a building
Noninterest expense was $66.0 million in 2Q18, up from $51.1 million in 1Q18
The increase was largely the result of an $11.8 million increase in acquisition- and integration-related expenses primarily associated with the CBF acquisition and $4.1 million of valuation adjustments associated with derivatives related to prior sales of Visa Class B shares

Non-Strategic
Pre-tax income was $8.8 million in 2Q18 compared to pre-tax income of $9.2 million in 1Q18
NII was $6.9 million and $7.2 million in 2Q18 and 1Q18, respectively
The provision credit was $6.1 million in 2Q18 compared to a provision credit of $6.3 million in 1Q18
Noninterest income was $1.7 million and $2.1 million in 2Q18 and 1Q18, respectively
Noninterest expense decreased to $6.0 million in 2Q18 from $6.4 million in 1Q18

Asset Quality
Allowance for loan losses decreased to $185.5 million in 2Q18 from $187.2 million in 1Q18; the allowance to loans ratio decreased 2 bps to 67 bps in 2Q18
Net charge-offs were $1.7 million in 2Q18 compared to $1.4 million in 1Q18
Regional banking net charge-offs were $5.5 million in 2Q18 compared to $3.6 million in 1Q18
Non-strategic net recoveries were $3.8 million in 2Q18 compared to $2.2 million in 1Q18
Nonperforming loans (“NPLs”), excluding loans held-for-sale, decreased to $124.8 million in 2Q18 from $132.0 million in 1Q18 primarily driven by one credit within the C&I portfolio
30+ delinquencies were $85.1 million in 2Q18 compared to $79.4 million in 1Q18

Taxes
The effective tax rates for 2Q18 and 1Q18 were 18.64 percent and 23.96 percent, respectively
2Q18 includes $3.0 million of favorable discrete items related to CBF purchase accounting adjustments and $1.1 million of favorable discrete items related to state audits
1Q18 includes $1.6 million of unfavorable discrete items related to CBF purchase accounting adjustments
The rates also reflect the favorable net effect from permanent benefits. Permanent benefits primarily consist of tax credit investments, life insurance, and tax-exempt interest, offset by non-deductibility (under Tax Reform) of a portion of FDIC premiums and executive compensation expenses

Capital and Liquidity
Declared $.12 per common share quarterly dividend in 2Q18 ($38.9 million in the aggregate) which was paid on July 2, 2018
Declared aggregate preferred quarterly dividend of $1.6 million in 2Q18 which was paid on July 10, 2018
There were no repurchases of shares in 2Q18 (other than those related to employee stock award programs). $250.0 million remains in the stock purchase authorization announced in January 2018, currently scheduled to expire January 31, 2020
Canceled approximately 2.4 million common shares in 2Q18 in connection with certain shareholders of CBF who rejected the terms of the merger agreement and instituted a dissenters' appraisal suit resulting in a reduction in common equity of $46.0 million
Capital ratios (regulatory capital ratios calculated under the Basel III risk-based capital rules as phased-in; current quarter is an estimate)
Total equity to total assets (GAAP) of 11.08 percent in 2Q18 compared to 11.30 percent in 1Q18
Tangible common equity to tangible assets (Non-GAAP) of 6.54 percent in 2Q18 compared to 6.71 percent in 1Q18
Common Equity Tier 1 of 8.95 percent in 2Q18 compared to 8.98 percent in 1Q18
Tier 1 of 9.95 percent in 2Q18 compared to 9.98 percent in 1Q18
Total Capital of 11.21 percent in 2Q18 compared to 11.25 percent in 1Q18
Leverage of 8.56 percent in 2Q18 compared to 8.50 percent in 1Q18

5




FHN CONSOLIDATED INCOME STATEMENT
Quarterly, Unaudited
 
 
 
 
 
(a) 

 
 

 
 

 
2Q18 Changes vs.
(Dollars in thousands, except per share data)
2Q18

 
1Q18

 
4Q17

 
3Q17

 
2Q17

 
1Q18
2Q17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
387,811

 
$
363,355

 
$
287,633

 
$
248,145

 
$
235,341

 
7

%
65

%
Less: interest expense
76,879

 
62,182

 
45,545

 
38,328

 
34,640

 
24

%
NM

 
Net interest income
310,932

 
301,173

 
242,088

 
209,817

 
200,701

 
3

%
55

%
Provision/(provision credit) for loan losses

 
(1,000
)
 
3,000

 

 
(2,000
)
 
NM

 
NM

 
Net interest income after provision for loan losses
310,932

 
302,173

 
239,088

 
209,817

 
202,701

 
3

%
53

%
Noninterest income:
 

 
 

 
 

 
 

 
 

 


 


 
Fixed income
37,697

 
45,506

 
55,079

 
55,758

 
55,110

 
(17
)
%
(32
)
%
Deposit transactions and cash management
36,083

 
35,984

 
30,158

 
28,011

 
27,858

 
*

 
30

%
Brokerage, management fees and commissions
13,740

 
13,483

 
12,642

 
11,937

 
12,029

 
2

%
14

%
Trust services and investment management
8,132

 
7,277

 
7,116

 
6,953

 
7,698

 
12

%
6

%
Bankcard income
6,635

 
6,445

 
8,237

 
6,170

 
5,605

 
3

%
18

%
Bank-owned life insurance
5,773

 
3,993

 
3,987

 
3,539

 
4,351

 
45

%
33

%
Securities gains/(losses), net
31

 
86

 
137

 
6

 
405

 
(64
)
%
(92
)
%
Other (b)
19,434

 
23,243

 
15,834

 
43

 
14,617

 
(16
)
%
33

%
Total noninterest income
127,525

 
136,017

 
133,190

 
112,417

 
127,673

 
(6
)
%
*

 
Adjusted gross income after provision for loan losses
438,457

 
438,190

 
372,278

 
322,234

 
330,374

 
*

 
33

%
Noninterest expense:
 

 
 

 
 

 
 

 
 

 


 


 
Employee compensation, incentives, and benefits (c)
165,890

 
171,254

 
177,312

 
137,383

 
138,276

 
(3
)
%
20

%
Repurchase and foreclosure provision (d)
(252
)
 
(72
)
 
53

 
(609
)
 
(21,733
)
 
NM

 
99

%
Legal fees
2,784

 
2,345

 
1,245

 
2,052

 
3,496

 
19

%
(20
)
%
Professional fees (e)
15,415

 
12,272

 
26,958

 
6,566

 
9,659

 
26

%
60

%
Occupancy (f)
22,503

 
20,451

 
15,887

 
13,619

 
12,800

 
10

%
76

%
Computer software
15,123

 
15,132

 
13,157

 
11,993

 
12,285

 
*

 
23

%
Contract employment and outsourcing (g)
5,907

 
4,053

 
5,979

 
2,762

 
3,255

 
46

%
81

%
Operations services
14,653

 
15,561

 
10,619

 
10,805

 
11,524

 
(6
)
%
27

%
Equipment rentals, depreciation, and maintenance
10,708

 
10,018

 
9,530

 
6,626

 
7,036

 
7

%
52

%
FDIC premium expense
9,978

 
8,614

 
9,090

 
6,062

 
5,927

 
16

%
68

%
Advertising and public relations
5,070

 
3,599

 
5,313

 
5,205

 
4,095

 
41

%
24

%
Communications and courier
7,530

 
8,232

 
5,379

 
4,328

 
4,117

 
(9
)
%
83

%
Amortization of intangible assets
6,460

 
6,474

 
3,568

 
1,964

 
1,964

 
*

 
NM

 
Other (b)
50,999

 
35,332

 
62,580

 
28,113

 
25,216

 
44

%
NM

 
Total noninterest expense
332,768

 
313,265

 
346,670

 
236,869

 
217,917

 
6

%
53

%
Income before income taxes
105,689

 
124,925

 
25,608

 
85,365

 
112,457

 
(15
)
%
(6
)
%
Provision for income taxes (h)
19,697

 
29,931

 
73,989

 
13,596

 
17,253

 
(34
)
%
14

%
Net income/(loss)
85,992

 
94,994

 
(48,381
)
 
71,769

 
95,204

 
(9
)
%
(10
)
%
Net income attributable to noncontrolling interest
2,852

 
2,820

 
2,910

 
2,883

 
2,852

 
1

%
*

 
Net income/(loss) attributable to controlling interest
83,140

 
92,174

 
(51,291
)
 
68,886

 
92,352

 
(10
)
%
(10
)
%
Preferred stock dividends
1,550

 
1,550

 
1,550

 
1,550

 
1,550

 
*

 
*

 
Net income/(loss) available to common shareholders
$
81,590

 
$
90,624

 
$
(52,841
)
 
$
67,336

 
$
90,802

 
(10
)
%
(10
)
%
Common Stock Data
 

 
 

 
 

 
 

 
 

 


 


 
EPS
$
0.25

 
$
0.28

 
$
(0.20
)
 
$
0.29

 
$
0.39

 
(11
)
%
(36
)
%
Basic shares (thousands)
325,153

 
326,489

 
265,169

 
233,749

 
233,482

 
*

 
39

%
Diluted EPS
$
0.25

 
$
0.27

 
$
(0.20
)
 
$
0.28

 
$
0.38

 
(7
)
%
(34
)
%
Diluted shares (thousands)
328,426

 
330,344

 
265,169

 
236,340

 
236,263

 
(1
)
%
39

%
Key Ratios & Other
 
 
 

 
 

 
 

 
 

 
 

 
 
 
Return on average assets (annualized) (i)
0.86
%
 
0.95
%
 
(0.58
)%
 
0.99
%
 
1.32
%
 
 

 
 

 
Return on average common equity (“ROE”) (annualized) (i)
7.86
%
 
8.79
%
 
(6.73
)%
 
10.79
%
 
15.26
%
 
 

 
 

 
Return on average tangible common equity (“ROTCE”) (annualized) (i) (j)
12.63
%
 
14.06
%
 
(8.78
)%
 
12.17
%
 
17.30
%
 
 

 
 

 
Fee income to total revenue (i)
29.08
%
 
31.10
%
 
35.47
%
 
34.89
%
 
38.80
%
 
 

 
 

 
Efficiency ratio (i)
75.90
%
 
71.67
%
 
92.41
%
 
73.51
%
 
66.44
%
 
 

 
 

 
Average full time equivalent employees
5,873

 
5,835

 
4,792

 
4,277

 
4,328

 
 

 
 

 
NM - Not meaningful
* Amount is less than one percent.
(a) 4Q17 includes one month of activity related to the CBF acquisition.
(b) Refer to the Other Income and Other Expense table on page 7 for additional information.
(c) 2Q18, 1Q18 and 4Q17 include $3.9 million, $3.9 million and $16.8 million, respectively of acquisition- and integration-related expenses associated with the CBF acquisition.
(d) Expense reversals driven by the settlements/recoveries of certain repurchase claims.
(e) 2Q18, 1Q18 and 4Q17 include $8.7 million, $5.4 million and $20.3 million, respectively of acquisition- and integration-related expenses associated with the CBF acquisition; 3Q17 and 2Q17 include $3.0 million and $4.9 million, respectively, acquisition- and integration-related expenses primarily associated with the CBF and Coastal acquisitions.
(f) 2Q18 includes $2.2 million of acquisition- and integration-related expenses associated with the CBF acquisition.
(g) 2Q18, 1Q18 and 4Q17 include $1.7 million, $1.4 million and $.9 million, respectively of acquisition- and integration-related expenses associated with the CBF acquisition.
(h) 2Q18 includes $3.0 million of favorable discrete items related to CBF purchase accounting adjustments and $1.1 million of favorable discrete items related to state audits; 1Q18 includes $1.6 million of unfavorable discrete tax adjustments related to CBF purchase accounting adjustments; 4Q17 increase primarily associated with the effects of the Tax Cuts and Jobs Act ("the Tax Act"); 4Q17, 3Q17 and 2Q17 include the impact of a favorable effective tax rate adjustment associated with the reversal of a capital loss deferred tax valuation allowance.
(i) See Glossary of Terms for definitions of Key Ratios.
(j) This non-GAAP measure is reconciled to ROE (GAAP) in the Non-GAAP to GAAP reconciliation on page 21 of this financial supplement.

6




FHN OTHER INCOME AND OTHER EXPENSE
Quarterly, Unaudited
 
 
 
 
 
 
 (a)

 
 
 
 
 
2Q18 Changes vs.
(Thousands)
 
2Q18

 
1Q18

 
4Q17

 
3Q17

 
2Q17

 
1Q18
2Q17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
ATM and interchange fees
 
$
3,413

 
$
3,267

 
$
3,427

 
$
3,137

 
$
3,083

 
4

%
11

%
Dividend income (b)
 
3,124

 
2,249

 

 

 

 
39

%
NM

 
Electronic banking fees
 
1,228

 
1,204

 
1,171

 
1,282

 
1,306

 
2

%
(6
)
%
Letter of credit fees
 
1,295

 
1,249

 
1,292

 
1,211

 
1,122

 
4

%
15

%
Mortgage banking
 
2,254

 
1,770

 
766

 
1,354

 
1,268

 
27

%
78

%
Deferred compensation (c)
 
991

 
451

 
1,876

 
1,128

 
1,491

 
NM


(34
)
%
Insurance commissions
 
476

 
757

 
472

 
567

 
592

 
(37
)
%
(20
)
%
Other service charges
 
3,905

 
5,124

 
3,485

 
2,954

 
3,109

 
(24
)
%
26

%
Gain/(loss) on extinguishment of debt (d)
 

 

 

 
(14,329
)
 

 
NM

 
NM

 
Other (e)
 
2,748

 
7,172

 
3,345

 
2,739

 
2,646

 
(62
)
%
4

%
Total
 
$
19,434

 
$
23,243

 
$
15,834

 
$
43

 
$
14,617

 
(16
)
%
33

%
 
 
 
 
 
 
 
 
 
 
 
 





 
Other Expense
 
 
 
 

 
 

 
 

 
 

 





 
Litigation and regulatory matters
 
$
16

 
$
2,134

 
$
32,114

 
$
8,162

 
$
533

 
(99
)
%
(97
)
%
Tax credit investments
 
1,079

 
1,137

 
822

 
762

 
942

 
(5
)
%
15

%
Travel and entertainment (f)
 
5,131

 
2,983

 
3,154

 
2,798

 
3,162

 
72

%
62

%
Employee training and dues
 
1,849

 
1,779

 
1,357

 
1,198

 
1,453

 
4

%
27

%
Customer relations
 
1,358

 
1,063

 
1,510

 
1,361

 
1,543

 
28

%
(12
)
%
Miscellaneous loan costs
 
1,035

 
1,142

 
673

 
757

 
699

 
(9
)
%
48

%
Supplies
 
1,987

 
1,836

 
1,222

 
928

 
1,093

 
8

%
82

%
OREO
 
810

 
108

 
53

 
303

 
446

 
NM


82

%
Other insurance and taxes
 
2,752

 
2,665

 
2,457

 
2,396

 
2,443

 
3

%
13

%
Non-service components of net periodic pension and post retirement cost (g)
 
1,530

 
504

 
363

 
454

 
851

 
NM

 
80

%
Other (h)
 
33,452

 
19,981

 
18,855

 
8,994

 
12,051

 
67

%
NM

 
Total
 
$
50,999

 
$
35,332

 
$
62,580

 
$
28,113

 
$
25,216

 
44

%
NM

 
NM - Not meaningful
(a)
4Q17 includes one month of activity related to the CBF acquisition.
(b)
Effective 1/1/18 FHN adopted ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" and began recording dividend income from FRB and FHLB holdings in other income. Prior to 1Q18 these amounts were included in Interest income on the Income Statement.
(c)
Amounts driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee compensation expense.
(d)
3Q17 includes a $14.3 million loss from the repurchase of equity securities previously included in a financing transaction.
(e)
1Q18 includes a $3.3 million gain on the sale of a building.
(f)
2Q18 increase largely driven by higher acquisition- and integration-related expenses associated with the CBF acquisition and seasonality.
(g)
1Q18 includes a $1.0 million favorable adjustment related to benefits received.
(h)
2Q18 includes $23.2 million of acquisition- and integration-related expenses associated with the CBF acquisition and $4.1 million of valuation adjustments associated with derivatives related to prior sales of Visa Class B shares; 1Q18 includes $17.0 million of acquisition- and integration-related expenses associated with the CBF acquisition; 4Q17 includes a $5.6 million charitable contribution to the First Tennessee Foundation and $6.2 million of acquisition- and integration-related expenses associated with the CBF acquisition; 2Q17 includes a $3.2 million charitable contribution to the First Tennessee Foundation.

















                        

7




FHN CONSOLIDATED PERIOD-END BALANCE SHEET
Quarterly, Unaudited 
 
 
 
 
 
 
 
 
 
 
 
2Q18 Changes vs.
(Thousands)
2Q18

 
1Q18

 
4Q17

 
3Q17

 
2Q17

 
1Q18
2Q17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
Investment securities (a)
$
4,734,411

 
$
4,836,155

 
$
5,180,255

 
$
3,973,138

 
$
3,959,592

 
(2
)
%
20

%
Loans held-for-sale (b)
692,659

 
770,412

 
699,377

 
339,780

 
432,771

 
(10
)
%
60

%
Loans, net of unearned income
27,701,740

 
27,249,793

 
27,658,929

 
20,166,091

 
19,989,319

 
2

%
39

%
Federal funds sold
91,303

 
62,541

 
87,364

 
76,316

 
34,036

 
46

%
NM

 
Securities purchased under agreements to resell
782,765

 
910,670

 
725,609

 
663,637

 
657,991

 
(14
)
%
19

%
Interest-bearing cash (c)
750,634

 
309,351

 
1,185,600

 
604,326

 
573,666

 
NM

 
31

%
Trading securities
1,649,470

 
1,759,430

 
1,416,345

 
1,469,402

 
1,315,891

 
(6
)
%
25

%
Total earning assets
36,402,982

 
35,898,352

 
36,953,479

 
27,292,690

 
26,963,266

 
1

%
35

%
Cash and due from banks
602,952

 
459,820

 
639,073

 
347,802

 
387,053

 
31

%
56

%
Fixed income receivables (d)
68,148

 
94,036

 
68,693

 
68,750

 
127,724

 
(28
)
%
(47
)
%
Goodwill (e)
1,409,276

 
1,398,501

 
1,386,853

 
236,335

 
236,335

 
1

%
NM

 
Other intangible assets, net (e)
167,955

 
174,415

 
184,389

 
43,157

 
45,121

 
(4
)
%
NM

 
Premises and equipment, net
525,175

 
531,981

 
532,251

 
293,393

 
292,463

 
(1
)
%
80

%
Other real estate owned ("OREO")
29,712

 
35,715

 
43,382

 
12,522

 
11,901

 
(17
)
%
NM

 
Allowance for loan losses
(185,462
)
 
(187,194
)
 
(189,555
)
 
(194,867
)
 
(197,257
)
 
(1
)
%
(6
)
%
Derivative assets
122,056

 
114,348

 
81,634

 
80,976

 
91,653

 
7

%
33

%
Other assets (a)
1,934,001

 
1,943,221

 
1,723,189

 
1,441,878

 
1,411,697

 
*

 
37

%
Total assets
$
41,076,795

 
$
40,463,195

 
$
41,423,388

 
$
29,622,636

 
$
29,369,956

 
2

%
40

%
 
 
 
 
 
 
 
 
 
 
 


 


 
Liabilities and Equity:
 
 
 

 
 

 
 

 
 

 


 


 
Deposits:
 
 
 

 
 

 
 

 
 

 


 


 
Consumer interest
$
12,780,195

 
$
12,674,251

 
$
12,877,955

 
$
9,164,017

 
$
9,429,788

 
1

%
36

%
Commercial interest
5,547,510

 
5,816,992

 
5,469,868

 
2,915,446

 
3,285,931

 
(5
)
%
69

%
Market-indexed (f)
4,412,272

 
4,346,862

 
4,249,536

 
3,534,546

 
3,315,045

 
2

%
33

%
Total interest-bearing deposits
22,739,977

 
22,838,105

 
22,597,359

 
15,614,009

 
16,030,764

 
*

 
42

%
Noninterest-bearing deposits
8,237,890

 
7,980,846

 
8,023,003

 
6,485,245

 
6,302,585

 
3

%
31

%
Total deposits
30,977,867

 
30,818,951

 
30,620,362

 
22,099,254

 
22,333,349

 
1

%
39

%
Federal funds purchased
351,655

 
392,714

 
399,820

 
292,650

 
314,892

 
(10
)
%
12

%
Securities sold under agreements to repurchase
713,152

 
672,154

 
656,602

 
516,867

 
743,684

 
6

%
(4
)
%
Trading liabilities
743,721

 
827,362

 
638,515

 
579,028

 
555,793

 
(10
)
%
34

%
Other short-term borrowings (g)
1,836,852

 
1,332,141

 
2,626,213

 
1,637,419

 
1,044,658

 
38

%
76

%
Term borrowings (e)
1,227,281

 
1,214,967

 
1,218,097

 
1,059,507

 
1,033,329

 
1

%
19

%
Fixed income payables (d)
14,739

 
6,167

 
48,996

 
44,304

 
28,571

 
NM

 
(48
)
%
Derivative liabilities
135,349

 
121,394

 
85,061

 
83,146

 
92,717

 
11

%
46

%
Other liabilities
526,430

 
504,817

 
549,234

 
426,910

 
396,075

 
4

%
33

%
Total liabilities
36,527,046

 
35,890,667

 
36,842,900

 
26,739,085

 
26,543,068

 
2

%
38

%
Equity:
 
 
 

 
 

 
 

 
 

 


 


 
Common stock
203,127

 
204,496

 
204,211

 
146,395

 
146,336

 
(1
)
%
39

%
Capital surplus
3,113,612

 
3,155,407

 
3,147,613

 
1,401,359

 
1,395,797

 
(1
)
%
NM

 
Undivided profits
1,254,069

 
1,211,655

 
1,160,434

 
1,177,126

 
1,131,162

 
4

%
11

%
Accumulated other comprehensive loss, net (h)
(412,114
)
 
(390,085
)
 
(322,825
)
 
(232,384
)
 
(237,462
)
 
6

%
74

%
Preferred stock
95,624

 
95,624

 
95,624

 
95,624

 
95,624

 
*

 
*

 
Noncontrolling interest (i)
295,431

 
295,431

 
295,431

 
295,431

 
295,431

 
*

 
*

 
Total equity
4,549,749

 
4,572,528

 
4,580,488

 
2,883,551

 
2,826,888

 
*

 
61

%
Total liabilities and equity
$
41,076,795

 
$
40,463,195

 
$
41,423,388

 
$
29,622,636

 
$
29,369,956

 
2

%
40

%
NM - Not meaningful
*Amount is less than one percent.
(a) Effective 1/1/18 FHN adopted ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" which resulted in the reclassification of all equity investments from investment securities to other assets.
(b) 2Q18 decrease driven by the sales of approximately $120 million UPB of loans; 2Q18 includes $579.5 million of SBA and USDA loans, $83.0 million of mortgage loans, and $30.2 million of other consumer loans; 4Q17 increase driven by increases in SBA and USDA loans and loans acquired from CBF that were classified as held-for-sale.     
(c) Includes excess balances held at Fed; 4Q17 increase driven by the CBF acquisition.
(d) Period-end balances fluctuate based on the level of pending unsettled trades.
(e) 4Q17 increase driven by the CBF acquisition.
(f) Market-indexed deposits are tied to an index not administered by FHN and are comprised of insured network deposits, correspondent banking deposits, and trust/sweep deposits.
(g) Balance fluctuates largely based on the level of FHLB borrowings as a result of loan demand and deposit levels.
(h) 2Q18 and 1Q18 increases primarily driven by an increase in unrealized losses on AFS securities.
(i) Consists of preferred stock of subsidiaries.




8




FHN CONSOLIDATED AVERAGE BALANCE SHEET
Quarterly, Unaudited 
 
 
 
 
 
 (a)

 
 
 
 
 
2Q18 Changes vs.
(Thousands)
2Q18

 
1Q18

 
4Q17

 
3Q17

 
2Q17

 
1Q18
2Q17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
Earning assets:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
Loans, net of unearned income:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
Commercial, financial, and industrial (C&I)
$
15,958,162

 
$
15,535,621

 
$
13,756,024

 
$
12,474,188

 
$
11,830,942

 
3

%
35

%
Commercial real estate
4,198,275

 
4,230,217

 
2,892,949

 
2,211,831

 
2,175,733

 
(1
)
%
93

%
Consumer real estate
6,217,618

 
6,302,365

 
5,029,588

 
4,398,550

 
4,431,591

 
(1
)
%
40

%
Permanent mortgage
369,144

 
389,732

 
400,991

 
405,287

 
408,202

 
(5
)
%
(10
)
%
Credit card and other
555,588

 
594,130

 
439,057

 
354,807

 
355,123

 
(6
)
%
56

%
Total loans, net of unearned income (b)
27,298,787

 
27,052,065

 
22,518,609

 
19,844,663

 
19,201,591

 
1

%
42

%
Loans held-for-sale (c)
727,212

 
726,978

 
504,577

 
540,121

 
320,698

 
*

 
NM

 
Investment securities:
 

 
 

 
 

 
 

 
 

 


 


 
U.S. treasuries
98

 
98

 
99

 
109

 
100

 
*

 
(2
)
%
U.S. government agencies
4,705,893

 
4,792,709

 
4,042,844

 
3,762,180

 
3,755,818

 
(2
)
%
25

%
States and municipalities
1,621

 
51

 
182

 

 

 
NM

 
NM

 
Corporate bonds
65,719

 
65,634

 
29,904

 
10,000

 
10,000

 
*

 
NM

 
Other (d)
4,114

 
5,153

 
203,395

 
188,361

 
188,229

 
(20
)
%
(98
)
%
Total investment securities
4,777,445

 
4,863,645

 
4,276,424

 
3,960,650

 
3,954,147

 
(2
)
%
21

%
Trading securities
1,568,675

 
1,711,776

 
1,439,152

 
1,125,033

 
1,283,212

 
(8
)
%
22

%
Other earning assets:
 

 
 

 
 

 
 

 
 

 


 


 
Federal funds sold
35,165

 
27,797

 
24,980

 
29,852

 
36,936

 
27

%
(5
)
%
Securities purchased under agreements to resell
728,785

 
881,429

 
818,887

 
664,208

 
833,253

 
(17
)
%
(13
)
%
Interest-bearing cash (e)
447,461

 
482,060

 
459,868

 
392,274

 
970,853

 
(7
)
%
(54
)
%
Total other earning assets
1,211,411

 
1,391,286

 
1,303,735

 
1,086,334

 
1,841,042

 
(13
)
%
(34
)
%
Total earning assets
35,583,530

 
35,745,750

 
30,042,497

 
26,556,801

 
26,600,690

 
*

 
34

%
Allowance for loan losses
(187,253
)
 
(190,420
)
 
(194,859
)
 
(196,631
)
 
(200,534
)
 
(2
)
%
(7
)
%
Cash and due from banks
564,554

 
563,555

 
437,604

 
355,626

 
350,832

 
*

 
61

%
Fixed income receivables
51,346

 
61,757

 
79,162

 
54,286

 
64,779

 
(17
)
%
(21
)
%
Premises and equipment, net
532,259

 
537,359

 
367,196

 
293,286

 
291,769

 
(1
)
%
82

%
Derivative assets
99,212

 
79,292

 
68,692

 
74,453

 
74,974

 
25

%
32

%
Other assets (d)
3,530,064

 
3,553,431

 
2,305,962

 
1,737,006

 
1,693,840

 
(1
)
%
NM

 
Total assets
$
40,173,712

 
$
40,350,724

 
$
33,106,254

 
$
28,874,827

 
$
28,876,350

 
*

 
39

%
 
 
 
 
 
 
 
 
 
 
 
 
 


 
Liabilities and equity:
 
 
 

 
 

 
 

 
 

 


 


 
Interest-bearing liabilities:
 
 
 

 
 

 
 

 
 

 


 


 
Interest-bearing deposits:
 
 
 

 
 

 
 

 
 

 


 


 
Consumer interest
$
12,581,023

 
$
12,586,843

 
$
10,279,937

 
$
9,244,021

 
$
9,330,990

 
*

 
35

%
Commercial interest
5,618,245

 
5,540,090

 
3,684,643

 
2,876,398

 
3,086,139

 
1

%
82

%
Market-indexed (f)
4,488,503

 
4,238,128

 
3,958,224

 
3,523,450

 
3,809,281

 
6

%
18

%
Total interest-bearing deposits
22,687,771

 
22,365,061

 
17,922,804

 
15,643,869

 
16,226,410

 
1

%
40

%
Federal funds purchased
368,321

 
464,300

 
425,900

 
376,150

 
435,854

 
(21
)
%
(15
)
%
Securities sold under agreements to repurchase
667,689

 
756,487

 
595,275

 
680,366

 
616,837

 
(12
)
%
8

%
Trading liabilities
666,092

 
822,815

 
741,063

 
597,269

 
762,667

 
(19
)
%
(13
)
%
Other short-term borrowings (g)
1,399,580

 
1,698,490

 
1,246,087

 
655,599

 
221,472

 
(18
)
%
NM

 
Term borrowings
1,220,494

 
1,219,916

 
1,121,268

 
1,112,735

 
1,034,020

 
*

 
18

%
Total interest-bearing liabilities
27,009,947

 
27,327,069

 
22,052,397

 
19,065,988