-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
MXkeg4M+yce8FvAMfPUVOceppfjcaUPw5itQb2nOK/2F58AemAtpJymAe9S5rd9V
i2NcSZXTdhj9ftnksuL98Q==
0000930413-10-001073.txt : 20100226
0000930413-10-001073.hdr.sgml : 20100226
20100226161650
ACCESSION NUMBER: 0000930413-10-001073
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20091231
FILED AS OF DATE: 20100226
DATE AS OF CHANGE: 20100226
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST HORIZON NATIONAL CORP
CENTRAL INDEX KEY: 0000036966
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 620803242
STATE OF INCORPORATION: TN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15185
FILM NUMBER: 10639528
BUSINESS ADDRESS:
STREET 1: 165 MADISON AVENUE
CITY: MEMPHIS
STATE: TN
ZIP: 38103
BUSINESS PHONE: 9018186232
MAIL ADDRESS:
STREET 1: 165 MADISON AVENUE
CITY: MEMPHIS
STATE: TN
ZIP: 38103
FORMER COMPANY:
FORMER CONFORMED NAME: FIRST TENNESSEE NATIONAL CORP
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: FIRST TENNESSEE BANKS INC
DATE OF NAME CHANGE: 19600201
10-K
1
c60287_10k.htm
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
|
Washington,
D. C. 20549
|
|
FORM 10-K
|
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2009
- or -
o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period
from __________ to__________
Commission File Number 001-15185
|
FIRST HORIZON NATIONAL CORPORATION
|
(Exact
name of registrant as specified in its charter)
|
|
|
TENNESSEE
|
62-0803242
|
(State
or other jurisdiction of
incorporation or organization)
|
(I.R.S.
Employer
Identification Number)
|
|
|
165 Madison Avenue, Memphis, Tennessee
|
38103
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrants telephone number, including Area Code: 901-523-4444
Securities registered pursuant to Section 12(b) of the Act:
|
|
Title
of Each Class
|
Name
of Exchange on which Registered
|
|
|
$0.625 Par Value Common Capital Stock
|
New York Stock Exchange, Inc.
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
x YES o NO
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
o YES x NO
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. x YES o NO
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). o YES o NO
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section
229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one)
|
|
x Large Accelerated Filer o Accelerated Filer
o Non-Accelerated Filer o Smaller Reporting Company
|
(Do not check if smaller reporting company)
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o YES x NO
At June 30, 2009, the
aggregate market value of the voting and non-voting common equity of the
registrant held by non-affiliates of the registrant was approximately $2.48
billion.
At January 29, 2010, the registrant had 221,993,535 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
|
|
|
Portions of the 2009 Annual
Report to shareholders Parts I, II, and IV
|
|
Portions of Proxy Statement
to be furnished to shareholders in connection with Annual Meeting of
Shareholders scheduled for April 20, 2010 Part III
|
PART I
Note
on Page Number References
In
this report, references to specific pages in the Corporations 2009 Annual
Report to shareholders, or to specific pages of its consolidated financial
statements or the notes thereto, relate to page numbers appearing in Exhibit 13
to this report. The Exhibit 13 page numbers do not necessarily correspond to
page numbers appearing in the printed 2009 Annual Report to shareholders.
ITEM 1
BUSINESS
General
Overview.
First
Horizon National Corporation (the Corporation, we, or us) is a Tennessee
corporation headquartered in Memphis, Tennessee and incorporated in 1968. We
are registered as a bank holding company under the Bank Holding Company Act of
1956, as amended, and are a financial holding company under the provisions of
the Gramm-Leach-Bliley Act. At December 31, 2009, the Corporation had total
consolidated assets of $26.1 billion and ranked 1st in terms of
total assets among Tennessee-headquartered bank holding companies.
Through
our principal subsidiary, First Tennessee Bank National Association (the
Bank), and its other banking-related subsidiaries, we provide diversified
financial services through five business segments. Three of the segments
reflect the common activities and operations of aggregated business segments
across the various delivery channels: Regional Banking, Capital Markets, and
Mortgage Banking. In 2008 we sold our mortgage banking businesses outside of
our Regional Banking footprint based in Tennessee, though we have retained
substantial loan and servicing assets from those businesses. National Specialty
Lending consists of traditional consumer and construction lending activities
in national markets outside of the Banks Tennessee-based market footprint;
although legacy assets remain on our balance sheet, our national specialty
lending businesses largely were discontinued in 2008. In addition, the
Corporate segment provides essential support within the Corporation. The
approximate percentage of consolidated revenues (for this purpose, the sum of
net interest income and noninterest income) ascribed to each of our segments
for the past three years is set forth below.
REVENUE MIX
ASSOCIATED WITH BUSINESS SEGMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Regional
Banking
|
|
41
|
%
|
|
37
|
%
|
|
53
|
%
|
|
Capital
Markets
|
|
36
|
%
|
|
24
|
%
|
|
20
|
%
|
|
National
Specialty Lending
|
|
6
|
%
|
|
8
|
%
|
|
15
|
%
|
|
Mortgage
Banking
|
|
14
|
%
|
|
28
|
%
|
|
11
|
%
|
|
Corporate
|
|
3
|
%
|
|
3
|
%
|
|
1
|
%
|
|
Financial
and other additional information concerning our segments including
information concerning assets, revenues, and financial results appears
in the response to Item 7 of Part II hereof and Note 21 to the Consolidated Financial
Statements contained in our 2009 Annual Report to Shareholders. During 2009
approximately 61% of revenues were provided by fee income and approximately 39%
of revenues were provided by net interest income. As a financial holding
company, the Corporation coordinates the financial resources of the
consolidated enterprise and maintains systems of financial,
operational and administrative
control intended to coordinate selected policies and activities, including as
described in Item 9A of Part II hereto.
The
Bank is a national banking association with principal offices in Memphis,
Tennessee. It received its charter in 1864. During 2009 through its various
business lines, including consolidated subsidiaries, the Bank generated gross
revenue (net interest income plus noninterest income) of approximately $2.0
billion and contributed the majority of consolidated revenue from continuing
operations. At December 31, 2009, the Bank had $25.8 billion in total assets,
$15.0 billion in total deposits, and $17.2 billion in total net loans. Among
Tennessee headquartered banks, the Bank ranked 1st in Tennessee
deposit market share at June 30, 2009.
At
December 31, 2009, the Corporations subsidiaries had over 200 business
locations in 16 U.S. states, Hong Kong, and Tokyo, excluding off-premises ATMs.
Almost all of those locations were bank financial centers and FTN Financial
offices.
At
December 31, 2009, the Bank had 183 financial center bank branch locations in
three states: 173 branches in 17 Tennessee counties, including all of the major
metropolitan areas of the state; 2 branches in Georgia; and 8 branches in
Mississippi. The branches in Georgia and Mississippi are associated with
Tennessee-based metropolitan market areas included within the Banks regional
footprint. Nearly all bank branch locations have on-premises ATMs. Nearly all
financial center bank branches provide a full range of banking services, and
all provide basic banking services. The Bank also has off-premises ATMs and
support offices in its banking markets, and offices associated with its
headquarters in Memphis, Tennessee.
FTN
Financial products and services, at December 31, 2009, were offered through 19
offices in total, including 17 offices in 14 states plus an office in each of
Hong Kong and Tokyo.
At
December 31, 2009, we provided the following services through our subsidiaries:
|
|
|
|
●
|
general banking services
for consumers, businesses, financial institutions, and governments
|
|
|
|
|
●
|
through FTN Financial
fixed income sales and trading; underwriting of bank-eligible securities and
other fixed-income securities eligible for underwriting by financial
subsidiaries; equity sales, trading, and research; loan sales; advisory
services; correspondent banking; and derivative sales
|
|
|
|
|
●
|
transaction processing
nationwide check clearing services and remittance processing
|
|
|
|
|
●
|
mortgage banking services
|
|
|
|
|
●
|
trust, fiduciary, and
agency services
|
|
|
|
|
●
|
credit card products
|
|
|
|
|
●
|
discount brokerage and
full-service brokerage
|
|
|
|
|
●
|
equipment finance
|
|
|
|
|
●
|
investment and financial
advisory services
|
|
|
|
|
●
|
mutual fund sales as agent
|
|
|
|
|
●
|
retail and commercial
insurance sales as agent
|
|
|
|
|
●
|
private mortgage
reinsurance
|
|
|
|
|
●
|
services related to health
savings accounts
|
2
Over
the past five years we have undergone substantial changes. Prior to 2008 our
principal businesses were in the areas of regional banking, capital markets,
and home mortgage. Our regional banking footprint was in the major
Tennessee-based market areas. Our capital markets business, which had primarily
institutional customers, was nationwide in scope. We had home mortgage offices
in over 40 U.S. states, and were using those offices to expand our banking
business. We had opened over 30 bank branches more than 15% of our total
branches in selected mortgage markets; we made home equity loans through our
mortgage offices; and we made commercial loans in many mortgage markets, mostly
to homebuilders. We refer to these mortgage-based activities outside of our
regional banking markets as our national businesses.
Starting
in 2007 the economic environment began to worsen significantly, especially in
terms of residential real estate transactions and values. That environment
became a recession which continued into 2009 and in many respects continues in
early 2010. In 2007 we began to change our strategy substantially. By the end
of 2008 most of our national businesses had been sold or closed, including our
mortgage businesses outside of Tennessee, our national lending businesses, and
all of our national bank branches. We raised significant amounts of equity
capital twice in 2008, once by selling common stock in the public markets and
later by selling preferred stock and a common stock warrant to the U.S.
Treasury. In 2008 and 2009 our loan loss expense climbed to very high levels.
During this time we focused on enhancing our credit management processes,
improving our efficiency, redirecting resources to support and build our
regional banking and capital markets businesses, and eliminating through sale
or closure those business units which no longer fit our strategy.
These
actions have changed our company in substantial ways. At the end of 2009 we are
a smaller company in terms of assets and liabilities than we were five years
ago, with a different business mix and strategic focus. We still hold a
substantial amount of legacy national assets, mostly in the form of retail and
commercial loans, and our efficiency and other re-focus efforts are continuing.
The following table provides selected data concerning our revenues, assets,
liabilities, and shareholders equity for the past five years.
SELECTED CONSOLIDATED REVENUE, ASSET, LIABILITY, AND EQUITY DATA
(Dollars in millions; financial condition data shown as of December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
776.5
|
|
$
|
895.1
|
|
$
|
940.7
|
|
$
|
996.9
|
|
$
|
984.0
|
|
Provision for loan
losses
|
|
|
880.0
|
|
|
1,080.0
|
|
|
272.8
|
|
|
83.1
|
|
|
67.7
|
|
Noninterest income
|
|
|
1,233.4
|
|
|
1,450.4
|
|
|
806.8
|
|
|
1,103.9
|
|
|
1,240.4
|
|
Total assets
|
|
|
26,068.7
|
|
|
31,022.0
|
|
|
37,015.5
|
|
|
37,918.3
|
|
|
36,579.1
|
|
Total deposits
|
|
|
14,867.2
|
|
|
14,241.8
|
|
|
17,032.3
|
|
|
20,213.2
|
|
|
23,317.6
|
|
Total long term debt
|
|
|
2,891.1
|
|
|
4,767.7
|
|
|
6,828.4
|
|
|
5,836.4
|
|
|
3,437.6
|
|
Total liabilities
|
|
|
22,766.2
|
|
|
27,447.3
|
|
|
34,584.6
|
|
|
35,160.6
|
|
|
33,936.2
|
|
Preferred Stock Series
CPP
|
|
|
798.7
|
|
|
782.7
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders
Equity
|
|
|
3,302.5
|
|
|
3,574.6
|
|
|
2,430.9
|
|
|
2,757.7
|
|
|
2,642.8
|
|
Other General Information.
An
element of our business strategy is to consider acquisitions and divestitures
that would enhance long-term shareholder value. Acquisitions and divestitures
which closed during the past three years are described in Note 2 to the
Consolidated Financial Statements, which information is incorporated into this
Item 1 by this reference.
3
All
of the Corporations operating subsidiaries are listed in Exhibit 21. The
Bank has filed notice with the Comptroller of the Currency (Comptroller or OCC)
as a government securities broker/dealer. The FTN Financial Capital Markets
division of the Bank is registered with the Securities and Exchange Commission
(SEC) as a municipal securities dealer. The Bank is supervised and
regulated as described below. Highland Capital Management Corp., Martin and Company,
Inc., First Tennessee Advisory Services, Inc., and First Tennessee Brokerage,
Inc. are registered with the SEC as investment advisers. Hickory Venture
Capital Corporation is licensed as a Small Business Investment Company. First
Tennessee Brokerage, Inc., FTN Financial Securities Corp. and FTN Equity
Capital Markets Corp. are registered as broker-dealers with the SEC and all
states where they conduct business for which registration is required. First
Tennessee Insurance Services, Inc. and First Horizon Insurance Services, Inc.
are licensed as insurance agencies in all states where they do business for
which licensing is required. FT Reinsurance Company is licensed by the state
of South Carolina as a captive insurance company. First Horizon Insurance, Inc.s
subsidiaries, First Horizon Insurance Group, Inc. and First Horizon Insurance
Agency, Inc., are licensed as insurance agencies in all states where they do
business for which licensing is required. FTN Financial Securities Corp., First
Horizon Insurance Services, Inc., FTN Equity Capital Markets Corp., First
Tennessee Insurance Services, Inc., First Horizon Insurance Group, Inc., and
First Horizon Insurance Agency, Inc. are financial subsidiaries under the
Gramm-Leach-Bliley Act. First Tennessee Brokerage, Inc. is licensed as an
insurance agency in the states where it does business for which licensing is
required for the sale of annuity products. FTN Financial Asia, Ltd. is a Hong
Kong based subsidiary. FTN Financial Asia, Ltd. is registered to
carry on a Type 1 regulated activity (Dealing in
Securities) with the Securities and Futures Commission in Hong Kong, and
its Tokyo, Japan office is registered with the Kanto Local Finance Bureau as
a Type-I Financial Instruments Business pursuant to the Financial Instruments
and Exchange Law of Japan. First Horizon Insurance Agency, Inc. had ceased doing
business as of December 31, 2009. In February 2010 the Corporation announced
its intention to exit the institutional equity research business conducted by
FTN Equity Capital Markets Corp.
Expenditures
for research and development activities were not material in any of the last
three fiscal years ended December 31, 2009.
Neither
the Corporation nor any of its significant subsidiaries is dependent upon a
single customer or very few customers.
We
do not experience material seasonality. We do experience a degree of seasonal
variation in certain revenues and expenses. In the Regional Banking and Capital
Markets businesses, historically these variations have somewhat increased
certain expenses, and somewhat diminished certain revenues, principally in the
first quarter of each year.
At
December 31, 2009, the Corporation and its subsidiaries had 5,739 employees,
or 5,598 full-time-equivalent employees, not including contract labor for
certain services.
For
additional information on the business of the Corporation, refer to the
Managements Discussion and Analysis of Results of Operations and Financial
Condition and Glossary sections contained in pages 3 through 66 of the
Corporations 2009 Annual Report to Shareholders, which sections are
incorporated herein by reference.
The
Corporations current internet address is www.fhnc.com. In the Investor
Relations SEC Filings section of its internet website, the Corporation makes
available free of charge its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements, and amendments
thereto as soon as reasonably practicable after the Corporation files such
material with, or furnishes such material to, the Securities and Exchange
Commission.
4
Supervision and Regulation.
The
following summary sets forth certain of the material elements of the regulatory
framework applicable to bank holding companies and financial holding companies
and their subsidiaries and to companies engaged in securities and insurance
activities and provides certain specific information about the Corporation. The
bank regulatory framework is intended primarily for the protection of
depositors and the Federal Deposit Insurance Fund and not for the protection of
security holders. In addition, certain activities of the Corporation and its
subsidiaries are subject to various securities and insurance laws and are
regulated by the Securities and Exchange Commission and the state insurance
departments of the states in which they operate. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by express reference to each of the particular
statutory and regulatory provisions. A change in applicable statutes,
regulations or regulatory policy may have a material effect on the business of
the Corporation.
General
The
Corporation is a bank holding company and financial holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the BHCA), and
is registered with the Board of Governors of the Federal Reserve System (the
Federal Reserve). The Corporation is subject to the regulation and
supervision of and examination by the Federal Reserve under the BHCA. The
Corporation is required to file with the Federal Reserve annual reports and
such additional information as the Federal Reserve may require pursuant to the
BHCA.
Under
the BHCA, prior to March 13, 2000, bank holding companies could not in general
directly or indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve, and a bank holding
company and its subsidiaries were generally limited to engaging in banking and
activities found by the Federal Reserve to be so closely related to banking as
to be a proper incident thereto. Since March 13, 2000, eligible bank holding
companies that elect to become financial holding companies may affiliate with
securities firms and insurance companies and engage in activities that are
financial in nature generally without the prior approval of the Federal
Reserve. See Gramm-Leach-Bliley Act below.
In
addition, the BHCA permits the Federal Reserve to approve an application by a
bank holding company to acquire a bank located outside the acquirers principal
state of operations without regard to whether the transaction is prohibited
under state law. See Interstate Banking and Branching Legislation. The
Tennessee Bank Structure Act of 1974, among other things, prohibits (subject to
certain exceptions) a bank holding company from acquiring a bank for which the
home state is Tennessee (a Tennessee bank) if, upon consummation, the company
would directly or indirectly control 30% or more of the total deposits in insured
depository institutions in Tennessee. As of June 30, 2009, the Corporation
estimates that it held approximately 13.5% of such deposits. Subject to certain
exceptions, the Tennessee Bank Structure Act prohibits a bank holding company
from acquiring a bank in Tennessee which has been in operation for less than
three years. Tennessee law permits a Tennessee bank to establish branches in
any county in Tennessee. See also - Interstate Banking and Branching
Legislation below.
The
Bank is a national banking association subject to regulation, examination and
supervision by the Comptroller as its primary federal regulator. In addition,
the Bank is insured by, and subject to regulation by, the Federal Deposit
Insurance Corporation (the FDIC). The Bank is also subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the
5
interest that may be charged thereon and limitations
on the types of investments that may be made, activities that may be engaged
in, and types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Bank. In addition to the impact of
regulation, commercial banks are affected significantly by the actions of the
Federal Reserve as it attempts to control the money supply and credit
availability in order to influence the economy. Also, the Bank and certain of
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with extensions of credit, leases or sales of property, or
furnishing products or services.
Payment of Dividends
The
Corporation is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of cash flow of the Corporation, including
cash flow to pay dividends on its stock or principal (premium, if any) and
interest on debt securities, is dividends from the Bank. There are statutory and
regulatory limitations on the payment of dividends by the Bank to the
Corporation, as well as by the Corporation to its shareholders.
As
a national bank, the Bank is required by federal law to obtain the prior
approval of the Comptroller for the payment of cash dividends if the total of
all dividends declared by the board of directors of the Bank in any year will
exceed the total of (i) its net profits (as defined and interpreted by
regulation) for that year plus (ii) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus. A national bank also can pay dividends only to the extent
that retained net profits (including the portion transferred to surplus) exceed
bad debts (as defined by regulation).
If,
in the opinion of the applicable federal bank regulatory authority, a
depository institution or a holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition
of the depository institution or holding company, could include the payment of
dividends), such authority may require that such institution or holding company
cease and desist from such practice. The federal banking agencies have
indicated that paying dividends that deplete a depository institutions or
holding companys capital base to an inadequate level would be such an unsafe
and unsound banking practice. Moreover, the Federal Reserve, the Comptroller
and the FDIC have issued policy statements which provide that bank holding
companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
In
addition, under the Federal Deposit Insurance Act (FDIA), an FDIC-insured
depository institution may not make any capital distributions (including the
payment of dividends) or pay any management fees to its holding company or pay
any dividend if it is undercapitalized or if such payment would cause it to
become undercapitalized.
At
December 31, 2009 and at January 1, 2010, under dividend restrictions imposed
under applicable federal laws as outlined above, the Bank could not legally
declare cash dividends on the Banks common or preferred stock without
obtaining regulatory approval. The application of those restrictions to the
Bank is discussed in more detail under the heading Liquidity Management in
the Managements Discussion and Analysis section beginning on page 34 of
the Corporations 2009 Annual Report to Shareholders, which section is incorporated
herein by reference. As mentioned in that section, the Bank has applied for OCC
approval to declare dividends on the Banks outstanding preferred stock
payable in April 2010. The Bank has not requested approval to pay common dividends
to the Corporation, its sole common stockholder.
Under
Tennessee law, the Corporation is not permitted to pay cash dividends if, after
giving effect to such payment, it would not be able to pay its debts as they
become due in the usual course of
6
business or the Corporations total assets would be
less than the sum of its total liabilities plus any amounts needed to satisfy
any preferential rights if the Corporation was dissolving. In addition, in
deciding whether or not to declare a dividend of any particular size, the
Corporations Board must consider the Corporations current and prospective
capital, liquidity, and other needs.
The
payment of cash dividends by the Corporation and the Bank also may be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines and debt covenants. In addition, in 2008
the Corporation issued preferred stock and a common stock warrant under the
Treasurys CPP, as discussed more fully under EESA Legislation & TARP
Participation beginning on page 10 of this report. Under the terms of that
issuance, the Corporation is not permitted to increase its cash common dividend
rate for a period of three years without permission of the Treasury. The Corporations
cash common dividend rate was zero when the preferred shares were issued.
In
2008 the Corporation discontinued paying a quarterly cash dividend to common
stockholders and began distributing a dividend consisting of common stock
instead. Under Tennessee law, the Corporation may declare and distribute a
common stock dividend so long as the issuance of such shares is authorized by
its charter. The Corporations charter currently authorizes the issuance of 400
million common shares, inclusive of shares already issued and outstanding. That
authority may be increased if approved by vote of the Corporations
stockholders. Other factors that could restrict the Corporations ability to
declare a common stock dividend include future stock issuances and outstanding
contractual obligations to issue common shares in the future. Examples of such
obligations include stock warrants and employee stock compensation awards.
Transactions
with Affiliates
There
are various legal restrictions on the extent to which the Corporation and its
nonbank subsidiaries (including for purposes of this paragraph, in certain
situations, subsidiaries of the Bank) can borrow or otherwise obtain credit
from the Bank. There are also legal restrictions on the Banks purchases of or
investments in the securities of and purchases of assets from the Corporation
and its nonbank subsidiaries, the Banks loans or extensions of credit to third
parties collateralized by the securities or obligations of the Corporation and
its nonbank subsidiaries, the issuance of guaranties, acceptances and letters
of credit on behalf of the Corporation and its nonbank subsidiaries, and
certain bank transactions with the Corporation and its nonbank subsidiaries, or
with respect to which the Corporation and its nonbank subsidiaries act as
agent, participate or have a financial interest. Subject to certain limited
exceptions, the Bank (including for purposes of this paragraph all subsidiaries
of the Bank) may not extend credit to the Corporation or to any other affiliate
(other than another subsidiary bank and certain exempted affiliates) in an
amount which exceeds 10% of the Banks capital stock and surplus and may not
extend credit in the aggregate to all such affiliates in an amount which
exceeds 20% of its capital stock and surplus. Further, there are legal
requirements as to the type, amount and quality of collateral which must secure
such extensions of credit by the Bank to the Corporation or to such other
affiliates. Extensions of credit and other transactions between the Bank and
the Corporation or such other affiliates must be on terms and under
circumstances, including credit standards, that are substantially the same or
at least as favorable to the Bank as those prevailing at the time for
comparable transactions with non-affiliated companies.
Capital Adequacy
The
Federal Reserve has adopted risk-based capital guidelines for bank holding
companies. The minimum guideline for the ratio of total capital (Total Capital)
to risk-weighted assets (including certain off-balance-sheet items, such as
standby letters of credit) is 8%, and the minimum ratio of Tier 1 Capital
(defined below) to risk-weighted assets is 4%. At least half of the Total
Capital must be composed
7
of common
stock, minority interests in the equity accounts of consolidated subsidiaries,
non-cumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock and trust preferred securities, less any amounts of
goodwill, other intangible assets, and other items that are required to be
deducted (Tier 1 Capital). The remainder may consist of qualifying
subordinated debt, certain types of mandatory convertible securities and
perpetual debt, other preferred stock and a limited amount of loan loss
reserves. At December 31, 2009, the Corporations consolidated Total Capital
and Tier 1 Capital ratios were 21.92% and 16.39%, respectively.
The
Federal Reserve Board, the FDIC, and the OCC have adopted rules to incorporate
market and interest-rate risk components into their risk-based capital
standards and that explicitly identify concentration of credit risk and certain
risks arising from non-traditional activities, and the management of such
risks, as important factors to consider in assessing an institutions overall
capital adequacy. Under the market risk requirements, capital is allocated to
support the amount of market risk related to a financial institutions ongoing
trading activities for banks with relatively large trading activities.
Institutions are able to satisfy any related additional capital requirement,
in part, by issuing short-term subordinated debt that qualifies as Tier 3 capital.
Based on present practices and activity levels, the Corporation believes that
these trading-related market risk rules have no significant impact on the
Corporations ability to meet regulatory capital requirements.
During
2009, the U.S. Department of the Treasury, the Federal Reserve Board, the FDIC,
and the OCC initiated a capital assessment program. Under the program, the
capital needs of selected major U.S. banking institutions were evaluated for
resilience under economic stress. If that assessment indicated a need for
additional capital, the affected institution was allowed to seek a specific
amount of additional private capital and, failing that, could have been
required to issue mandatory convertible preferred shares to a government
agency. Although the program has not been formally extended to mid-sized and
smaller banks, it is possible that similar stress-assessment processes
informally have become, or formally will evolve into, an important methodology
by which regulators judge the capital and liquidity strength of banks and
holding companies, in addition to the bright-line numerical tests mentioned in
this Supervision and Regulation section.
In
addition, the Federal Reserve has established minimum leverage ratio guidelines
for bank holding companies. These guidelines provide for a minimum ratio of
Tier 1 Capital to quarterly average assets, less goodwill and certain other
intangible assets (the Leverage Ratio), of 3% for bank holding companies
that meet certain specific criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. The Corporations Leverage Ratio at December 31, 2009, was 13.36%.
The guidelines also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a tangible Tier 1 Capital leverage ratio
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
The
Bank is subject to risk-based and leverage capital requirements similar to
those described above adopted by the Comptroller. The Corporation believes that
the Bank was in compliance with applicable minimum capital requirements as of
December 31, 2009. Neither the Corporation nor the Bank has been advised by any
federal banking agency of any specific minimum Leverage Ratio requirement
applicable to it.
Failure
to meet capital guidelines could subject a bank to a variety of enforcement
remedies, including the termination of deposit insurance by the FDIC, and to
certain restrictions on its business and
8
in certain
circumstances to the appointment of a conservator or receiver. See Prompt
Corrective Action at page
10.
In
1999, the Basel Committee on Banking Supervision launched its efforts to
develop an improved capital adequacy framework by issuing its proposals to
revise the 1988 Capital Accord, sometimes known as Basel I. In June 2004, the
Basel Committee issued its final framework. The new capital framework (Basel
II) consists of minimum capital requirements, a supervisory review process, and
the effective use of market discipline. Basel II seeks to ensure that a banks
capital position is consistent with its overall risk profile and strategy,
encourages early supervisory intervention when a banks capital position
deteriorates, and calls for detailed disclosure of a banks capital adequacy
and how it evaluates its own capital adequacy.
In
September 2006 the U.S. regulators published a revised Notice of Proposed
Rulemaking (NPR) for Basel II. The Final Rule on Advanced Capital Adequacy
Framework Basel II, has been approved by all regulatory agencies and took
effect in 2008. The Final Rule currently applies only to certain core banks
with total assets of $250 billion or more, but allows non-core banks to opt-in.
Under the Final Rules the Bank is considered to be a non-core bank. For
those non-core banks that do not opt in, a NPR was issued in December 2006,
known as Basel IA, which proposed certain revisions to the current Basel I
capital rules. In July 2008 the agencies issued a supplemental NPR. At year-end
2009, the 2006 and 2008 NPRs remain unimplemented. If implemented, the net
effect of these NPRs would allow non-core banks the option of adopting the
Standardized Approach of the Basel II Framework or remaining under the current
Basel I framework.
Holding
Company Structure and Support of Subsidiary Banks
Because
the Corporation is a holding company, its right to participate in the assets of
any subsidiary upon the latters liquidation or reorganization will be subject
to the prior claims of the subsidiarys creditors (including depositors in the
case of the Bank) except to the extent that the Corporation may itself be a
creditor with recognized claims against the subsidiary. In addition, depositors
of a bank, and the FDIC as their subrogee, would be entitled to priority over
the creditors in the event of liquidation of a bank subsidiary.
Under
Federal Reserve policy, the Corporation is expected to act as a source of
financial strength to, and to commit resources to support, the Bank. This
support may be required at times when, absent such Federal Reserve policy, the
Corporation may not be inclined to provide it. In addition, any capital loans
by a bank holding company to any of its subsidiary banks are subordinate in
right of payment to deposits and to certain other indebtedness of such
subsidiary bank. In the event of a bank holding companys bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Cross-Guarantee
Liability
Under
the FDIA, a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution in danger of default.
Default is defined generally as the appointment of a conservator or receiver
and in danger of default is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. The FDICs claim for damages is superior to claims of
shareholders of the insured depository institution or its holding company but
is subordinate to claims of depositors, secured creditors
9
and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The Bank is currently the only depository institution
owned by the Corporation. In the event that the Corporation established or
acquired another depository institution, any loss suffered by the FDIC in
respect of one subsidiary bank would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
Corporations other subsidiary bank(s), and a potential loss of the
Corporations investment in such subsidiary bank.
Prompt
Corrective Action
The
FDIA requires, among other things, the federal banking regulators to take
prompt corrective action in respect of FDIC-insured depository institutions
that do not meet minimum capital requirements. Under the FDIA, insured
depository institutions are divided into five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under applicable
regulations, an institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a Tier 1 Capital ratio of at least 6% and a
Total Capital ratio of at least 10% and is not subject to a directive, order,
or written agreement to meet and maintain specific capital levels. An
institution is defined to be adequately capitalized if it meets all of its
minimum capital requirements as described above. An institution will be
considered undercapitalized if it fails to meet any minimum required measure;
significantly undercapitalized if it has a Total Risk-Based Capital ratio of
less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3%, or a Leverage
Ratio of less than 3%; and critically undercapitalized if it fails to maintain
a level of tangible equity equal to at least 2% of total assets. An institution
may be deemed to be in a capitalization category that is lower than is
indicated by its actual capital position if it receives an unsatisfactory
examination rating.
The
FDIA generally prohibits an FDIC-insured depository institution from making any
capital distribution (including payment of dividends) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. An insured depository
institutions holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institutions assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan, for the plan to be accepted by the
applicable federal regulatory authority. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institutions capital. If a depository institution fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator, generally within 90 days of the date on which they
become critically undercapitalized.
At
December 31, 2009, the Bank had sufficient capital to qualify as well
capitalized under the regulatory capital requirements discussed above.
EESA
Legislation & TARP Participation
In
October 2008, the U.S. Congress enacted the Emergency Economic Stabilization
Act of 2008 (EESA). EESA was an attempt to address several difficulties
facing the banking system and financial markets in the U.S. Among other things,
EESA temporarily increased the FDIC deposit account insurance
10
limit from
$100,000 to $250,000, created, preserved, or extended certain tax incentives,
and authorized the SEC to modify a fair value accounting rule. Under EESA the
U.S. Department of the Treasury (Treasury) and the FDIC have established,
among other things, a Troubled Asset Relief Program (TARP) and, under the
TARP, a Capital Purchase Program (CPP), all of which are applicable to banks
and their holding companies.
The
Corporation is a participant in the CPP. In November 2008 the Corporation
issued 866,540 preferred shares and a ten-year warrant to purchase 12,743,235
common shares at $10.20 per share to the Treasury for a capital contribution
of $866,540,000. Those original share and price amounts have been and will
continue to be adjusted for stock dividends, as mentioned in f. below. Additional
information concerning those shares and warrant is provided under the caption
FHN Preferred Stock and Warrant within Note 12 to our financial statements,
beginning on page 101 of our 2009 Annual Report to Shareholders, which is part
of the material from that Report that has been incorporated by reference into
Item 15 of Part IV of this report.
Participation
in the CPP made several terms, restrictions, and covenants applicable to the
Corporation or the Bank, including the following:
|
|
|
|
|
a.
|
The
preferred shares carry a 5% per year cumulative preferred dividend rate,
applied against the liquidation value of $1,000 per preferred share. The
dividend rate increases to 9% after five years. Dividends compound if they
accrue in arrears.
|
|
|
|
|
b.
|
The
preferred shares have no redemption date, and the holder of the shares has no
right to compel the Corporation to purchase the shares. The holder does have
certain registration rights to facilitate a sale of the shares.
|
|
|
|
|
c.
|
The Corporation
may redeem the preferred shares for $1,000 per share plus accrued and unpaid
dividends, but any such redemption is subject to the approval of the
Corporations primary banking regulator (currently the Federal Reserve
Board).
|
|
|
|
|
d.
|
The preferred
shares generally are non-voting.
|
|
|
|
|
e.
|
During the
time that the preferred shares are outstanding, a number of restrictions
apply to the Corporation, including, among others:
|
|
|
|
|
|
1.
|
The
Corporation is not free to issue other preferred stock that is senior to the
CPP preferred shares.
|
|
|
|
|
|
|
2.
|
Until the
third anniversary of the sale of the preferred shares, subject to certain
exceptions, the Corporation may not increase its common cash dividend or
repurchase common or other equity shares (subject to certain limited
exceptions) without Treasurys approval. At the time the preferred shares
were issued, the Corporation did not pay a regular cash dividend on its
common shares.
|
|
|
|
|
|
|
3.
|
If the
Corporation were to resume paying a common cash dividend in the future, any
such dividend would have to be discontinued if a preferred dividend were
missed. Any such discontinuance could be resumed only if all preferred
dividends in arrears were paid. Similar restrictions apply to the
Corporations ability to repurchase common or other equity shares if
preferred dividends are missed.
|
|
|
|
|
|
|
4.
|
Failure to
pay the preferred dividend is not an event of default. However, a failure to
pay a total of six preferred dividends, whether or not consecutive, gives the
holders of the preferred shares the right to elect two directors to the
Corporations Board of Directors. That right will continue until the
Corporation pays all dividends in arrears.
|
11
|
|
|
|
|
|
5.
|
In
conformity with requirements of the CPP agreements and the TARP, the
Corporation has obtained from its executive officers certain compensation
waivers and a compensation restriction agreement that affects certain
compensation arrangements in certain circumstances.
|
|
|
|
|
|
f.
|
The number
of common shares covered by the warrant, and the per-share price, are subject
to pro-rata anti-dilution adjustment if common stock splits and dividends
occur. Accordingly, these adjustment provisions apply to each quarterly stock
dividend beginning with the dividend distributed in January 2009.
|
|
|
|
|
g.
|
To the
extent required to comply with any changes in applicable federal statutes,
the Treasury has retained the right to unilaterally amend the agreement under
which the preferred shares and warrant were sold.
|
In
February 2009, the U.S. Congress enacted the American Recovery and Reinvestment
Act of 2009 (the Recovery Act). A provision of the Recovery Act significantly
expanded EESAs restrictions on executive compensation and extended those
new restrictions to certain additional employees. The Treasury has applied these
new restrictions to the Corporation in respect of the preferred stock sold to
the Treasury. Among other things, under the amended restrictions, incentive
compensation, including bonus and retention awards but excluding certain
commission programs, are significantly restricted for the five executives whose
compensation is described in detail in our proxy statement (the named executives)
and for the twenty employees, excluding the named executives, whose total compensation
is the highest (the Highest 20). Certain stock awards are permitted
to be granted to such persons if their value is limited to one-third of total
compensation and certain other restrictions are followed. The incentive
restriction does not apply to payments required by certain prior written
contracts. This incentive restriction and the other compensation restrictions
will continue to apply for as long as the Treasury holds Corporation preferred
stock. The Corporation may redeem the preferred stock only if it obtains
regulatory approval.
Interstate
Banking and Branching Legislation
Under
current federal law, a bank may merge with a bank in another state and continue
to operate the merged banks branches as interstate branches, unless a state
has opted out of allowing such transactions, which currently none do. States
may impose restrictions on such merger transactions, including minimum age
requirements (up to a maximum of five years), and state deposit concentration
limits. Many states have imposed such age requirements for a minimum period of
time that a bank must have been in existence before a merger is allowed.
Additionally, national and state deposit concentration limits apply to
interstate mergers.
Federal
law also allows a bank to establish and operate a de novo branch or acquire an existing branch in a state in
which a bank is not headquartered and does not maintain a branch if the host
state explicitly permits de novo
branching. Various states permit de novo
branching, and some states require reciprocal branching statutes to allow de novo branching. Tennessee permits de novo branching on a reciprocal basis.
Once a bank
has established branches in a state through an interstate merger transaction or
through de
novo branching, the bank may then establish and acquire additional
branches within that state to the same extent that a state chartered bank is
allowed to establish or acquire branches within the state.
12
Gramm-Leach-Bliley Act
The
Gramm-Leach-Bliley Act of 1999 (GLB Act) repealed or modified a number of
significant provisions of then-current laws, including the Glass-Steagall Act
and the Bank Holding Company Act of 1956, which imposed restrictions on banking
organizations ability to engage in certain types of activities. The GLB Act
generally allows bank holding companies such as the Corporation broad authority
to engage in activities that are financial in nature or incidental to such a
financial activity, including insurance underwriting and brokerage; merchant
banking; securities underwriting, dealing and market-making; real estate
development; and such additional activities as the Federal Reserve in
consultation with the Secretary of the Treasury determines to be financial in
nature or incidental thereto. A bank holding company may engage in these
activities directly or through subsidiaries by qualifying as a financial
holding company. To qualify, a bank holding company must file an initial
declaration with the Federal Reserve, certifying that all of its subsidiary
depository institutions are well-managed and well-capitalized. The GLB Act also
permits national banks such as the Bank to engage in certain of these
activities through financial subsidiaries. To control or hold an interest in a
financial subsidiary, a national bank must meet the following requirements:
|
|
(1)
|
the national
bank must receive approval from the Comptroller for the financial subsidiary
to engage in the activities;
|
|
|
(2)
|
the national
bank and its depository institution affiliates must each be well-capitalized
and well-managed;
|
|
|
(3)
|
the
aggregate consolidated total assets of all of the national banks financial
subsidiaries must not exceed 45% of the national banks consolidated total
assets or, if less, $50 billion;
|
|
|
(4)
|
the national
bank must have in place adequate policies and procedures to identify and
manage financial and operational risks and to preserve the separate
identities and limited liability of the national bank and the financial
subsidiary; and
|
|
|
(5)
|
if the
financial subsidiary will engage in principal transactions and the national
bank is one of the one hundred largest banks, the national bank must have
outstanding at least one issue of unsecured long-term debt that is currently
rated in one of the three highest investment grade rating categories (or if
in the second fifty largest banks, an alternative requirement is that the
national bank has a current long-term issuer credit rating within the three
highest investment grade rating categories). If this fifth requirement ceases
to be met after a national bank controls or holds an interest in a financial
subsidiary, the bank cannot invest additional capital in that subsidiary
until the requirement again is met.
|
No
new financial activity may be commenced under the GLB Act unless the national
bank and all of its depository institution affiliates have at least
satisfactory CRA ratings. Certain restrictions apply if the bank holding
company or the national bank fails to continue to meet one or more of the
requirements listed above. In addition, the GLB Act contains a number of other
provisions that may affect the Banks operations, including functional
regulation of the Banks securities operations by the SEC and the Banks
insurance operations by the states and limitations on the use and disclosure to
third parties of customer information. The Corporation is a financial holding
company and the Bank has a number of financial subsidiaries.
13
FDIC Insurance Assessments; DIFA
The
Deposit Insurance Fund (DIF) was formed in March 2006 when the FDIC merged
the Bank Insurance Fund with the Savings Association Insurance Fund pursuant to
the the Federal Deposit Insurance Reform Act of 2005 (2005 Reform Act). Prior to 2008, the
FDIC insurance premium charged on bank deposits insured by the DIF varied
depending on the institutions risk classification, based on capital and
supervisory risk factors. Beginning in 2008 new risk category and DIF premium
structures became effective. The new rate ranges were based on four new Risk
Categories that in turn were based on asset size as well as capital,
supervisory, credit, and other risk factors. Somewhat different factors were used
for institutions in different situations. Within the range for a given Risk
Category, the rate applicable to any particular institution is determined by
the FDIC according to formal guidelines. In 2008, rates for institutions ranged
from 5 to 43 basis points of U.S. deposits.
During
2008 and 2009, losses from bank failures significantly diminished the DIF. Late
in 2008 the FDIC announced a multi-year restoration plan for the DIF which
included an increase in deposit insurance premium rates of 7 basis points
across all rate categories, effective for the first quarter of 2009. In June
2009 the FDIC imposed an emergency 20-basis-point special assessment. In
November 2009 the FDIC required banks to pre-pay three years of premiums in
2009. Early in 2010 the FDIC announced an initiative to link deposit insurance
premium rates to the risks associated with a banks employee compensation
structures. Further rate increases or other actions may be imposed in 2010 or
later to restore or maintain the DIF or to further other regulatory objectives.
The
Deposit Insurance Funds Act of 1996 (DIFA) provides for assessments to be
imposed on insured depository institutions with respect to deposits insured by
the DIF to pay for the cost of Financing Corporation (FICO) bonds. All banks
are assessed to pay the interest due on FICO bonds. The FICO assessment cost to
the Corporation on an annual basis is immaterial.
Under
the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by a federal bank regulatory
agency.
Depositor Preference
Federal
law provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the liquidation
or other resolution of such an institution by any receiver.
Securities Regulation
Certain
of the Corporations subsidiaries are subject to various securities laws and
regulations and capital adequacy requirements promulgated by the regulatory and
exchange authorities of the jurisdictions in which they operate.
The
Corporations registered broker-dealer subsidiaries are subject to the SECs
net capital rule, Rule 15c3-1. That rule requires the maintenance of minimum
net capital and limits the ability of the broker-dealer to transfer large
amounts of capital to a parent company or affiliate. Compliance with the rule
could limit operations that require intensive use of capital, such as
underwriting and trading.
14
Certain
of the Corporations subsidiaries are registered investment advisers which are
regulated under the Investment Advisers Act of 1940. Advisory contracts with
clients automatically terminate under these laws upon an assignment of the
contract by the investment adviser unless appropriate consents are obtained.
Insurance Activities
Subsidiaries
of the Corporation sell various types of insurance as agent in a number of the
states. Insurance activities are subject to regulation by the states in which
such business is transacted. Although most of such regulation focuses on
insurance companies and their insurance products, insurance agents and their
activities are also subject to regulation by the states, including, among other
things, licensing and marketing and sales practices.
Proposals
At
any given time various new legislative and regulatory proposals are pending.
At the present time a number of significant new initiatives concerning the
financial services industry have been announced by various government
officials, including by the U.S. President early in 2010, and a major bill has
been approved by the U.S. House of Representatives. Additional information is
presented under Recent Regulatory and Legislative Proposals beginning
on page 30 of this report. The Corporation cannot predict the outcome of these
initiatives or proposals nor their eventual effect, if any, upon the
Corporation or the Bank.
Competition.
The
Corporation and its subsidiaries face substantial competition in all aspects of
the businesses in which they engage from national and state banks located in
our Tennessee markets and large out-of-state and non-U.S. banks as well as from
savings and loan associations, credit unions, other financial institutions,
consumer finance companies, trust companies, investment counseling firms, money
market and other mutual funds, insurance companies and agencies, securities
firms, mortgage banking companies, and others.
Our
traditional regional banking business primarily competes in five broad market
areas associated with Tennessee: Mid-South around Memphis; Middle Tennessee
around Nashville; Eastern Tennessee around Knoxville; Southeastern Tennessee
around Chattanooga; and Northeastern Tennessee around the tri-cities area of
Johnson City, Bristol, and Kingsport. Our regional banking business serves both
retail and commercial customers. Key competitors in those markets include
Regions Bank, SunTrust Bank, Bank of America N.A., and Pinnacle National Bank,
among many others.
Our
capital markets business serves institutional customers broadly segregated into
depositories (including banks, thrifts and credit unions) and non-depositories
(including money managers, insurance companies, public funds, pension funds and
hedge funds). Both customer segments are widely dispersed geographically, and
we have many competitors within both segments including major U.S. and
international securities firms as well as numerous regional and local firms.
Late
in 2008 certain financial companies or their affiliates that traditionally were
not banks were allowed to convert to bank status, and since then have been able
to compete more directly with the Bank for deposits and other traditional
banking services and products. Those companies include investment banks,
brokerage firms, insurance company affiliates, and the financing company
associated with an automobile manufacturer. It remains unclear whether those
conversions are the start of a new trend. For additional information on the
competitive position of the Corporation and the Bank, refer to the General
15
subsection
above of this Item 1. Also, refer to the subsections entitled Supervision and
Regulation and Effect of Governmental Policies, both of which are relevant
to an analysis of the Corporations competitors. Due to the intense competition
in the financial services industry, the Corporation makes no representation
that its competitive position has remained constant, nor can it predict whether
its position will change in the future.
Sources and Availability of Funds.
Specific
reference is made to the Managements Discussion and Analysis and Glossary
sections, including the subsection entitled Liquidity Management, contained
in pages 3 through 66 (including pages 34 through 39) of the Corporations 2009
Annual Report to Shareholders, which sections are incorporated herein by
reference.
Effect of Governmental Policies.
The
Bank is affected by the policies of regulatory authorities, including the
Federal Reserve System and the Comptroller. An important function of the
Federal Reserve System is to regulate the national money supply.
Among
the instruments of monetary policy used by the Federal Reserve are: purchases
and sales of U.S. Government securities in the marketplace; changes in the
discount rate, which is the rate any depository institution must pay to borrow
from the Federal Reserve; changes in the reserve requirements of depository
institutions; and, indirectly, changes in the federal funds rate, which is the
rate at which depository institutions lend balances to each other overnight.
These instruments are intended to influence economic and monetary growth,
interest rate levels, and inflation.
The
monetary policies of the Federal Reserve System and other governmental policies
have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to do so in the future. Because of
changing conditions in the national and international economy and in the money
markets, as well as the result of actions by monetary and fiscal authorities,
it is not possible to predict with certainty future changes in interest rates,
deposit levels, loan demand or the business and results of operations of the
Corporation and the Bank or whether the changing economic conditions will have
a positive or negative effect on operations and earnings.
Various
bills are from the time to time introduced in the United States Congress and
the Tennessee General Assembly and other state legislatures, and regulations
are proposed by the regulatory agencies which could affect the business of the
Corporation and its subsidiaries. A recent example of such legislation is
discussed under EESA Legislation & TARP Participation beginning
on page 10 of this report, and certain recent proposals are referenced under Proposals
beginning on page 15 of this report. It cannot be predicted whether or in what
form any particular proposals will be adopted or the extent to which the
business of the Corporation and its subsidiaries may be affected thereby.
Non-U.S. Operations.
Our
non-U.S. operations are not material.
Statistical Information Required by Guide 3.
The
statistical information required to be displayed under Item I pursuant to Guide
3, Statistical Disclosure by Bank Holding Companies, of the Exchange Act
Industry Guides is incorporated herein by reference to the Consolidated
Financial Statements and the notes thereto and the Managements
16
Discussion and
Analysis of Results of Operations and Financial Condition and Glossary sections
set forth at pages 3 through 66 of the Corporations 2009 Annual Report to
Shareholders. Certain information not contained in the 2009 Annual Report to
Shareholders, but required by Guide 3, is contained in the tables immediately
following:
FIRST HORIZON NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
ON DECEMBER 31
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Investment
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Government agency issued mortgage-backed securities
& collateralized mortgage obligations
|
|
$
|
2,189,507
|
|
$
|
2,587,497
|
|
$
|
2,532,869
|
|
U.S. Treasuries
|
|
|
48,129
|
|
|
48,720
|
|
|
42,015
|
|
Other U.S. government agencies*
|
|
|
118,145
|
|
|
133,701
|
|
|
228,010
|
|
States and municipalities
|
|
|
44,400
|
|
|
65,360
|
|
|
1,721
|
|
Other
|
|
|
294,287
|
|
|
289,875
|
|
|
228,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,694,468
|
|
$
|
3,125,153
|
|
$
|
3,032,791
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes securities issued by government sponsored entities which are not backed by the
full faith and credit of the U.S. government.
Certain previously reported amounts have been reclassified to agree with current presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
7,159,370
|
|
$
|
7,863,727
|
|
$
|
7,140,087
|
|
$
|
7,201,009
|
|
$
|
6,578,117
|
|
Real estate commercial
|
|
|
1,479,888
|
|
|
1,454,040
|
|
|
1,294,922
|
|
|
1,136,590
|
|
|
1,213,052
|
|
Real estate construction
|
|
|
924,475
|
|
|
1,778,140
|
|
|
2,753,475
|
|
|
2,753,458
|
|
|
2,108,121
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential
|
|
|
7,362,458
|
|
|
8,161,435
|
|
|
7,791,885
|
|
|
7,973,313
|
|
|
8,368,219
|
|
Real estate construction
|
|
|
229,487
|
|
|
980,798
|
|
|
2,008,289
|
|
|
2,085,133
|
|
|
1,925,060
|
|
Other retail
|
|
|
121,526
|
|
|
135,779
|
|
|
144,019
|
|
|
161,178
|
|
|
168,413
|
|
Credit card receivables
|
|
|
192,036
|
|
|
189,554
|
|
|
204,812
|
|
|
203,307
|
|
|
251,016
|
|
Real estate loans pledged against other collateralized
borrowings
|
|
|
654,644
|
|
|
714,717
|
|
|
766,027
|
|
|
590,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,123,884
|
|
$
|
21,278,190
|
|
$
|
22,103,516
|
|
$
|
22,104,905
|
|
$
|
20,611,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under
agreements to repurchase
|
|
$
|
2,874,353
|
|
$
|
1,751,079
|
|
$
|
4,829,597
|
|
Commercial paper
|
|
|
|
|
|
3,130
|
|
|
2,076
|
|
Trading liabilities
|
|
|
293,387
|
|
|
359,502
|
|
|
556,144
|
|
Other short-term borrowings
|
|
|
761,758
|
|
|
4,276,559
|
|
|
3,420,919
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,929,498
|
|
$
|
6,390,270
|
|
$
|
8,808,736
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of Certificates of Deposit $100,000 and more on December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
0-3
Months
|
|
3-6
Months
|
|
6-12
Months
|
|
Over 12
Months
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit $100,000
and more
|
|
$
|
136,889
|
|
$
|
118,236
|
|
$
|
150,336
|
|
$
|
154,483
|
|
$
|
559,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Maturities of Commercial &
Real Estate Construction Loans on December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Within 1 Year
|
|
After 1 Year
Within 5 Years
|
|
After 5 Years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
3,550,782
|
|
$
|
2,531,673
|
|
$
|
1,076,915
|
|
$
|
7,159,370
|
|
Real estate commercial
|
|
|
603,577
|
|
|
742,630
|
|
|
133,681
|
|
|
1,479,888
|
|
Commercial real estate construction
|
|
|
592,485
|
|
|
331,990
|
|
|
|
|
|
924,475
|
|
Retail real estate construction
|
|
|
229,487
|
|
|
|
|
|
|
|
|
229,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,976,331
|
|
$
|
3,606,293
|
|
$
|
1,210,596
|
|
$
|
9,793,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For maturities over one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates - floating
|
|
|
|
|
$
|
2,559,103
|
|
$
|
608,561
|
|
$
|
3,167,664
|
|
Interest rates - fixed
|
|
|
|
|
|
1,047,190
|
|
|
602,035
|
|
|
1,649,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
3,606,293
|
|
$
|
1,210,596
|
|
$
|
4,816,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 1A
RISK FACTORS
This
Item outlines specific risks that could affect the ability of our various
businesses to compete, change our risk profile, or materially impact our
financial results and condition. Our operating environment continues to evolve
and new risks continue to emerge. To address that challenge we have an
enterprise-wide risk management committee that oversees processes for
monitoring evolving risks and oversees various initiatives designed to manage
and control our potential exposure.
The
following discussion highlights risks which could impact us in material ways by
causing our future results to differ materially from our past results, by
causing future results to differ materially from current expectations, or by
causing material changes in our financial condition. In this Item we have
outlined risks that we believe are important to us at the present time.
However, other risks may prove to be important in the future, and new risks may
emerge at any time. We cannot predict with certainty all potential developments
which could affect our financial performance or condition.
18
Forward-Looking Statements
This
report, including materials incorporated into it, may contain forward-looking
statements with respect to our beliefs, plans, goals, expectations, and
estimates. Forward-looking statements are statements that are not a
representation of historical information but rather are related to future
operations, strategies, financial results or other developments. The words
believe, expect, anticipate, intend, estimate, should, is likely,
will, going forward, and other expressions that indicate future events and
trends identify forward-looking statements.
Forward-looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, operational, economic and
competitive uncertainties and contingencies, many of which are beyond any
companys control, and many of which, with respect to future business decisions
and actions (including acquisitions and divestitures), are subject to change.
Examples of uncertainties and contingencies include, among other important
factors: general and local economic and business conditions, including economic
recession or depression; expectations of and actual timing and amount of
interest rate movements, including the slope of the yield curve, which can have
a significant impact on a financial services institution; market and monetary
fluctuations; inflation or deflation; customer, investor, regulatory, and
legislative responses to any or all of these conditions; the financial
condition of borrowers and other counterparties; competition within and outside
the financial services industry; geopolitical developments including possible
terrorist activity; natural disasters; effectiveness and cost-efficiency of our
hedging practices; technology; demand for our product offerings; new products
and services in the industries in which we operate; and critical accounting
estimates. Other factors are those inherent in lending and holding loan-based
assets including prepayment risks, pricing concessions, fluctuation in U.S.
housing and other real estate prices, fluctuation of collateral values, and
changes in customer profiles. Additionally, the actions of the Securities and
Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the
Office of the Comptroller of the Currency (OCC), the Board of Governors of the
Federal Reserve System (Federal Reserve), Financial Industry Regulatory
Authority (FINRA), Federal Deposit Insurance Corporation (FDIC), and other
regulators; actions of the U.S. Department of the Treasury, which has purchased
securities from us under its Capital Purchase Program; regulatory,
administrative, and judicial proceedings and changes in laws and regulations
applicable to us; and our success in executing our business plans and
strategies and managing the risks involved in the foregoing, could cause actual
results to differ.
We
assume no obligation to update any forward-looking statements that are made in
this report or in any other statement, release, report, or filing from time to
time. Actual results could differ because of one or more factors, including
those listed above or presented below, in other sections of this report, or in
material incorporated by reference into this report. Readers of this report
should carefully consider the factors discussed in this Item below, among
others, in evaluating forward-looking statements and assessing our prospects.
Competition Risks
We
compete with other financial services companies for customers. Our primary
areas of competition include: retail and commercial deposits and bank loans,
wealth management, personal or consumer loans including home mortgages and
lines of credit, capital markets products and services, and other consumer and
business financial products and services. Our competitors in these areas
include national, state, and non-US banks, savings and loan associations,
credit unions, consumer finance companies, trust companies, investment
counseling firms, money market and other mutual funds, insurance companies and
agencies, securities firms, mortgage banking companies, hedge funds, and other
financial services companies that serve the markets which we serve. Some
competitors are banks, subject to the same regulatory regime as we are, while
others are not banks and in many cases experience a significantly different or
reduced degree of regulation. We expect that competition will continue to grow
more intense with respect to most of our products and services. Heightened
competition tends to put
19
downward
pressure on revenues from affected items, upward pressure on marketing and
other promotional costs, or both. For additional information regarding
competition for customers, refer to the Competition heading of Part
I, Item 1 beginning on page 15 of this report.
While
we face competition for customers, we also compete for financial capital (see
Financing, Funding, and Liquidity Risks beginning on page 24 of this
report) and to acquire and retain the human capital we need to thrive. Labor
markets change over time. The segments of that market most useful to us may contract
with demographic shifts relating to age, birth rates, education levels,
geography, local or regional economic conditions, and other factors.
Growth and Disposition Risks
Every
organization faces risks associated with growth. Our growth from 2003 to 2007
resulted primarily from a combination of: our expansion strategy in banking
based on our mortgage operations; acquisition of customers from competitors
that have merged with each other; and targeted non-bank business acquisitions.
In 2007 and 2008 we modified our strategy in response to substantial and rapid
changes in business conditions. As a result, in 2008 we sold our national
mortgage platforms, closed our national specialty lending operations, and
renewed our emphasis on financial services in our traditional Tennessee-based
markets. Additional information concerning these matters is presented under
Recent Recession and Disruptions beginning on page 32.
Although
our strategy is expected to evolve as business conditions continue to change,
at present our strategys primary components are to invest capital and other
resources in our current Tennessee-based retail/commercial banking market
footprints, and in our capital markets business. In any case growth is expected
to be coordinated with a focus on stronger and more stable returns on capital.
Our growth in the past has been primarily organic rather than through
substantial acquisitions; in the future, that pattern may shift if
appropriate opportunities, within or outside of our current markets, present
themselves. We believe that the successful execution of our strategy depends
upon a number of key elements, including:
|
|
|
|
●
|
our ability
to attract and retain banking customers in our Tennessee-based regional
banking market areas;
|
|
|
|
|
●
|
in our
capital markets business, our ability to maintain or strengthen our existing
customer relationships while at the same time successfully identifying and
exploiting opportunities for new products and services, and for new
customers, in the US and overseas;
|
|
|
|
|
●
|
our ability
to develop and retain profitable customer relationships while expanding or
enhancing our existing information processing, technology, and other
operational infrastructures effectively and efficiently;
|
|
|
|
|
●
|
our ability
to manage the liquidity and capital requirements associated with organic
growth; and
|
|
|
|
|
●
|
our ability
to manage the operational, cultural, and (in some cases) liquidity and
capital difficulties associated with growth through purchases.
|
We have in
place strategies designed to achieve those elements that are significant to us
at present. Our challenge is to execute those strategies and adjust them, or
adopt new strategies, as conditions change.
To
the extent we engage in bank or non-bank business acquisitions, we face various
risks associated with that practice, including:
|
|
|
|
●
|
our ability
to identify, analyze, and correctly assess the contingent risks in the
acquisition and to price the transaction appropriately;
|
|
|
|
|
●
|
our ability
to integrate the acquired company into our operations quickly and
cost-effectively;
|
20
|
|
|
|
●
|
our ability
to integrate the name recognition and goodwill of the acquired company with
our own; and,
|
|
|
|
|
●
|
our ability
to retain customers and key employees of the acquired company.
|
At
times a company must consider disposing of or otherwise exiting businesses or
units that no longer fit into managements plans for the future. Key risks
associated with dispositions, including closures, include:
|
|
|
|
●
|
our ability
to price a sale transaction appropriately and otherwise negotiate appropriate
terms;
|
|
|
|
|
●
|
our ability
to identify and implement key customer, technology systems, and other
transition actions to avoid or minimize negative effects on retained
businesses;
|
|
|
|
|
●
|
our ability
to assess and manage any loss of synergies that the disposed or exited
business had with our retained businesses; and
|
|
|
|
|
●
|
our ability
to manage capital, liquidity, and other challenges that may arise in the
event of a closure or other disposition that results in significant cash
expenditures or a financial loss to us.
|
Credit Risks
We
face the risk that our customers may not repay their loans and that the
realizable value of collateral may be insufficient to avoid a loss. In our
business some level of credit loss is unavoidable and overall levels of credit
loss can vary over time. Since 2007 credit losses increased to historically
high levels, as mentioned in Recent Recession and Disruptions beginning
on page 32.
Our
ability to manage credit risks depends primarily upon our ability to assess the
creditworthiness of customers and the value of collateral, including real
estate. We manage credit risk by attempting to diversify our loan portfolio
and by managing its granularity, and by recording and managing an allowance
for expected loan losses based on the factors mentioned above and in accordance
with applicable accounting rules. We also record loan charge-offs in accordance
with accounting and regulatory guidelines and rules. These guidelines and
rules could change and cause charge-offs to increase for reasons related
or unrelated to the underlying performance of our portfolio. Moreover, the
SEC could take accounting positions applicable to our holding company that
may be inconsistent with those taken by the OCC or other regulators for the
Bank.
A
significant challenge for us is to keep the credit and other models and
approaches we use to originate and manage loans updated to take into account
changes in the competitive environment, in real estate prices and other
collateral values, and in the economy, among other things, based on our
experience originating loans and servicing loan portfolios. In recent years we
have changed our models and approaches based on changes in circumstances, and
we will do so again. At times those changes have had significant impacts upon
our reported financial results and condition. In addition, we use those models
and approaches to manage our loan portfolios and lending businesses. To the
extent our models and approaches are not consistent with underlying real-world
conditions, our management decisions could be adversely affected with
substantial consequences to the Corporation. Additional information concerning
credit risks and our management of them is set forth under the captions Credit
Risk Management beginning on page 40, Foreclosure and Repurchase
Reserves beginning
on page 57, and Allowance for Loan Losses beginning on page 52, of
the Managements
Discussion and Analysis of Results of Operations and Financial Condition
section of our 2009 Annual Report to Shareholders, which is part of the
material from that Report that has been incorporated by reference into Item 7
of Part II of this report.
21
Insurance
We
use insurance to manage a number of risks, including damage or destruction of
property, legal and other liability, and certain types of credit risks. Not all
such risks are insured, in any given insured situation our insurance may be
inadequate to cover all loss, and many risks we face are uninsurable. For those
risks that are insured, we also face the risks that the insurer may default on
its obligations or that the insurer may refuse to honor them. We treat the
former risk as a type of credit risk, which we manage by reviewing the insurers
that we use and by striving to use more than one insurer when practical. The
risk of refusal, whether due to honest disagreement or bad faith, is inherent
in any contractual situation.
A
portion of our retail loan portfolio involves mortgage default insurance. If a
default insurer were to experience a significant credit downgrade or were to
become insolvent, that could adversely affect the carrying value of loans
insured by that company, which could result in an immediate increase in our loan
loss provision or write-down of the carrying value of those loans on our
balance sheet and, in either case, a corresponding impact on our financial
results. If many default insurers were to experience downgrades or insolvency
at the same time, the risk of a financial impact would be amplified and the
disruption to the default insurance industry could curtail our ability to
originate new loans that need such insurance, which would result in a loss of
business for us.
Risk From Economic Downturns and Changes
Delinquencies
and credit losses generally increase during economic downturns due to an
increase in liquidity problems for customers and downward pressure on
collateral values. Likewise, demand for loans (at a given level of
creditworthiness), deposit and other products, and financial
services may decline during an economic downturn, and may be adversely affected
by other national, regional, or local economic factors that impact demand for
loans and other financial products and services. Such factors include, for
example, changes in interest rates, real estate prices, or expectations
concerning rates or prices. Accordingly, an economic downturn or other adverse
economic change (local, regional, national, or global) can hurt our financial
performance in the form of higher loan losses, lower loan production levels,
lower deposit levels, and lower fees from transactions and services. Additional
information illustrating these risks is given in Recent Recession and
Disruptions beginning on page 32.
Hedge Risks
In
the normal course of our businesses, including (among others) banking,
mortgage, and capital markets, we attempt to create partial or full economic
hedges of various, though not all, financial risks. Our hedging activities are
discussed in more detail in various places under the following captions of the
Managements Discussion and Analysis of Results of Operations and Financial
Condition section of our 2009 Annual Report to Shareholders, which is part of
the material from that Report that has been incorporated by reference into Item
7 of Part II of this report: Risk Management, beginning on page 31;
and,
Critical Accounting Policies, beginning on page 52. Hedging creates
certain risks for us, including the risk that the other party to the hedge transaction
will fail to perform (counterparty risk, which is a type of credit risk), and
the risk that the hedge will not fully protect us from loss as intended (hedge
failure risk). Unexpected counterparty failure or hedge failure could have a
significant adverse effect on our liquidity and earnings.
Service Risks
We
engage in a wide range of activities in which we provide services to customers.
These activities create risk of claims against us that the services were
provided in a manner that harmed the customer or a third party, or were contrary
to applicable laws or rules. These activities include fiduciary, custodial,
funds management, and advisory services, among others. We manage these risks
primarily through training programs and supervision processes.
Reputation Risks
Our
ability to conduct and grow our businesses, and to obtain and retain customers,
is highly dependent upon external perceptions of our business practices and our
financial stability. Our reputation is, therefore, a key asset for us. Our
reputation is affected principally by our own practices and how those
22
practices are
perceived and understood by others. Adverse perceptions regarding the practices
of our competitors, or our industry as a whole, also may adversely impact our
reputation. In addition, adverse perceptions relating to parties with whom we
have important relationships may adversely impact our reputation. Senior
management oversees processes for reputation risk monitoring, assessment, and
management.
Damage
to our reputation could hinder our ability to access the capital markets or
otherwise impact our liquidity, could hamper our ability to attract new
customers and retain existing ones, could create or aggravate regulatory
difficulties, and could undermine our ability to attract and retain talented
employees, among other things. Adverse impacts on our reputation, or the
reputation of our industry, may also result in greater regulatory and/or
legislative scrutiny, which may lead to laws or regulations that change or
constrain our business or operations. Events that result in damage to our
reputation also may increase our litigation risk.
Operational Risks
Our
ability to conduct and grow our businesses is dependent in part upon our
ability to create and maintain an appropriate operational and organizational
infrastructure, manage expenses, and recruit and retain personnel with the
ability to manage a complex business. Operational risk can arise in many ways,
including: errors related to failed or inadequate physical, operational, information
technology, or other processes; faulty or disabled computer or other technology
systems; fraud, theft, physical security breaches, electronic data and related
security breaches, or other criminal conduct by employees or third parties;
and exposure to other external events. Inadequacies may present themselves
in a myriad of ways, and actions taken to manage one risk may be ineffective
for others. For example, information technologies systems may be insufficiently
redundant to withstand a fire, incursion, or other major casualty, and they
may be insufficiently adaptable to new business conditions or opportunities.
Efforts to make such systems more robust may also make them less adaptable,
and vice-versa.
In
addition, we outsource some of our operational functions to third parties.
Those third parties may experience similar errors or disruptions that could
adversely impact us and over which we may have limited control and, in some
cases, limited ability to quickly obtain an alternate vendor. To the extent we
increase our reliance on third party vendors to perform or assist operational
functions, the challenge of managing the associated risks becomes more
difficult.
For
example, in 2008 we sold our national mortgage origination and servicing
platforms. We retained significant servicing right assets, however, and we
continue to originate mortgage products in our regional banking markets in and
around Tennessee. Of practical necessity, we have outsourced our servicing
functions to the purchaser of our platforms, and we have outsourced many key
roles in the Tennessee-based mortgage origination process to a third party. Managing
the operational, compliance, reputational, liability, and other risks
associated with this level of outsourcing in those business areas is an ongoing
challenge for us.
Failure
to build and maintain the necessary operational infrastructure, or failure of
our disaster preparedness plans if primary infrastructure components suffer
damage, can lead to risk of loss of service to customers, legal actions, and
noncompliance with applicable laws or regulatory standards. Operational risk
is specifically managed through internal monitoring, measurement, and assessment
by line management and oversight of processes by top management, and by
maintaining systems to adhere to regulatory guidance. Additional information
concerning operational risks and our management of them appears under the
caption Operational Risk Management beginning on page 40 of the Managements
Discussion and Analysis of Results of Operations and Financial Condition
section of our 2009 Annual Report to Shareholders, which is part of the
material from that Report that has been incorporated by reference into Item 7
of Part II of this report.
23
Financing, Funding, and Liquidity Risks
Management
of liquidity and related risks is a key function for our business. Additional information
concerning liquidity risk management is set forth under the caption Liquidity
Management beginning on page 34 of the Managements Discussion and
Analysis of Results of Operations and Financial Condition section of our 2009
Annual Report to Shareholders, which is part of the material from that Report
that has been incorporated by reference into Item 7 of Part II of this report.
In
general, the costs of our funding directly impact our costs of doing business
and, therefore, can positively or negatively affect our financial results.
Our funding requirements currently are met principally by deposits and by
financing from other financial institutions, particularly (in 2008 and 2009)
government institutional lending to us under the Term Auction Facility (TAF)
program as well as Federal Home Loan Bank (FHLB) secured lending. Historically
we also depended upon financing from private institutional investors by means
of the capital markets; however, in 2008 and 2009 we were not able to utilize
the private markets economically, and we are not able to predict when we
will again be able to utilize them economically. Deposits, the TAF program,
and FHLB lending, among other things, have provided funds to us more affordably;
however, the future costs and availability of those funding sources largely
are not within our control. The TAF program is scheduled to be discontinued
in 2010, and by year-end 2009 we had reduced our TAF utilization significantly.
Late in 2008 FDIC deposit insurance coverage was expanded significantly,
but on a temporary basis. Coverage on most accounts increased to $250,000;
that increase is scheduled to expire after 2013. Coverage on certain non-interest
bearing accounts became unlimited; that increase is scheduled to expire in
2010. We believe that those increased coverage levels resulted in some amount
of increased deposit levels; that result could be reversed if the coverage
increases expire.
A
number of more general factors could make such funding more difficult, more expensive, or
unavailable on affordable terms, including, but not limited to, our financial
results, organizational or political changes, adverse impacts on
our reputation, changes in the activities of our business partners, disruptions
in the capital markets, specific events that adversely impact the financial
services industry, counterparty availability, changes affecting our loan
portfolio or other assets, changes affecting our corporate and regulatory
structure, interest rate fluctuations, ratings agency actions, general economic
conditions, and the legal, regulatory, accounting, and tax environments
governing our funding transactions. In addition, our ability to raise funds is
strongly affected by the general state of the U.S. and world economies and
financial markets as well as the policies and capabilities of the U.S.
government and its agencies, and may become or remain increasingly difficult
due to economic and other factors beyond our control.
Events
affecting interest rates, markets, and other factors which adversely impact our
ability or desire to access the capital markets for funding likewise may
adversely affect the demand for our services in our capital markets business.
As a result, disruptions in those areas may adversely impact our earnings in
that business unit as well as in our regional banking unit. For instance,
disruptions in 2007 that were related to mortgages and mortgage-backed assets
significantly reduced the demand for certain of our capital markets products
and services and increased the costs and uncertainties associated with our
mortgage servicing portfolio.
Rating
agencies assign credit ratings to issuers and their debt. In that role,
agencies directly affect the availability and cost of our funding. The
Corporation and the Bank currently receive ratings from several rating entities
for unsecured borrowings. A rating below investment grade typically reduces
availability and increases the cost of market-based funding. A debt rating of
Baa3 or higher by Moodys Investors Service, or BBB- or higher by Standard
& Poors and Fitch Ratings, is considered investment grade for many
purposes. At the present time, all three rating agencies rate the unsecured
senior debt of the Corporation and the Bank as investment grade, although we
are at or near the lowest levels of that grade. To the extent that in the
future we depend on institutional borrowing and the capital markets for funding
and capital, we could experience reduced liquidity and increased cost of
funding if our debt ratings were lowered further, particularly if lowered below
investment grade. In addition, other actions by ratings agencies can create
uncertainty about our ratings in the future and thus can adversely affect the
cost and availability of funding, including placing us on negative outlook or
on watchlist. Please note that
24
a credit
rating is not a recommendation to buy, sell, or hold securities, is subject to
revision or withdrawal at any time, and should be evaluated independently of
any other rating.
In
addition to the direct liquidity risks noted above, reductions our in credit
ratings could allow counterparties to terminate and immediately force us to
settle certain derivatives agreements, and could force us to provide additional
collateral with respect to certain derivatives agreements. Additional
information concerning those matters is provided under the caption Derivative
Instruments within Note 25
to our financial statements, beginning on page 148 of our 2009
Annual Report to Shareholders, which is part of the material from that Report
that has been incorporated by reference into Item 15 of Part IV of this report.
Certain
regulatory laws or rules establish minimum capital levels or define
risk-weighting for capital, regulate deposit insurance, and govern related
funding matters for banks. Those laws or rules could be changed in a manner
that could increase our overall cost of capital and thus reduce our earnings.
Before
we disposed of our national lending operations, we depended on our ability to
sell or securitize first- and second-lien mortgage loans and, prior to 2007,
home equity line of credit loans (which we refer to as HELOC), and we depended
upon our ability to sell mortgages and/or mortgage servicing rights. Those
actions involved the sale of whole loans (sometimes on a servicing-retained
basis) or of beneficial interests in loans. Going forward, our mortgage
origination activity continues within our Tennessee-based regional banking
footprint. Most mortgages originated are processed, sold, and serviced on a
private-label basis through a third party under contract with us. However,
risks pertaining to our new loan originations, our retained loans and servicing
rights assets, and our former funding activities, continue.
When
we sold or securitized mortgage and HELOC loans, we sometimes did so with
varying degrees of recourse, which meant, in effect, that we retained some of
the risk for the loan if it defaulted. Generally we sold or securitized loans
with no recourse. A loan sold with recourse means the seller retains
substantial or full responsibility if it defaults. For a loan we sold without
recourse, we could still bear responsibility to the buyer in many cases if the
loan defaulted early or was paid off early (typically within the first 90
days), or if the loan did not conform to representations we made to the buyer
at the time of sale. At present, in those cases where we are responsible for
a loan for representation non-conformity, usually we satisfy our obligations
to the buyer by repurchase or by making the buyer whole economically. Typically
we had similar obligations for breach of
representation, non-conformity, or early default, if the loan was included on
a non-recourse basis in a securitization transaction or loan sale, if the
transaction was a sale of servicing rights, or if we had a make-whole or other
indemnity obligation. Repurchase and make-whole loans (for representation non-conformity)
frequently involve default or fraud and therefore frequently result in losses
to us. We managed the risk of non-conformity through origination and
documentation controls and procedures, and through post-closing quality control
processes and repurchase and make-whole request reviews. In recent years we have
experienced an increase in loan repurchases and make-wholes for these reasons;
2009 saw a sharp increase. Management has augmented its review process and
maintains a reserve for losses related to loan repurchases and make-wholes
due to both nonconformity and recourse obligations. Additional information
concerning these risks is set forth under the caption Foreclosure and
Repurchase Reserves beginning on page
57 of the Managements
Discussion and Analysis of Results of Operations and Financial Condition
section of our 2009 Annual Report to Shareholders, which is part of the
material from that Report that has been incorporated by reference into Item 7
of Part II of this report.
Interest Rate and Yield Curve Risks
A
significant portion of our business involves borrowing and lending money.
Accordingly, changes in interest rates directly impact our revenues and
expenses, and potentially could expand or
25
compress our
net interest margin. We actively manage our balance sheet to control the risks
of a reduction in net interest margin brought about by ordinary fluctuations
in rates. Additional information concerning those risks and our management
of them appears under the caption Interest Rate Risk Management beginning
on page 32 of the Managements
Discussion and Analysis of Results of Operations and Financial Condition
section of our 2009 Annual Report to Shareholders, which is part of the
material from that Report that has been incorporated by reference into Item 7
of Part II of this report.
Our
mortgage servicing rights (MSR) portfolio is affected by changes in interest
rates. Although we sold our mortgage servicing platform in 2008, at present we
still retain substantial MSR assets. The value of MSR assets declines when the
underlying loans are refinanced or otherwise paid early. Generally, when
interest rates increase, the value of MSR generally increases, and when rates
decline the value of MSR tends to decline. However, those general tendencies
do not result in concrete outcomes in all circumstances; for example, a decrease
in interest rates does not always result in a predictable increase in
refinancings because other factors may blunt loan demand or curtail credit
availability. Additional information concerning those risks and our management
of them appears under the caption Mortgage Servicing Rights and Other Related
Retained Interests beginning on page 54 of the Managements Discussion
and Analysis of Results of Operations and Financial Condition section of our
2009 Annual Report to Shareholders, which is part of the material from that Report
that has been incorporated by reference into Item 7 of Part II of this report.
We
face the risks associated with movements in the yield curve. The yield curve
simply shows the interest rates applicable to short and long term debt. The
curve is steep when short-term rates are much lower than long-term rates; it is
flat when short-term rates are equal, or nearly equal, to long-term rates; and
it is inverted when short-term rates exceed long-term rates. Historically, the
yield curve normally is positively sloped. However, the yield curve can be
relatively flat or inverted for short or even protracted periods. A flat or
inverted yield curve tends to decrease net interest margin, which would
adversely impact our lending businesses, and it tends to reduce demand for
long-term debt securities, which would adversely impact the revenues of our
capital markets business. A prolonged inversion of the yield curve historically
is so uncommon that it is difficult to predict all the effects that such a
market condition is reasonably likely to create.
Expectations
by the market regarding the direction of future interest rate movements,
particularly long-term rates, can impact the demand for long-term debt which in
turn can impact the revenues of our capital markets business. That risk is most
apparent during times when strong expectations have not yet been reflected in
market rates, or when expectations are especially weak or uncertain.
Securities Inventories and Market Risks
Our
capital markets business buys and sells various types of securities for its
institutional customers. In the course of that business we hold inventory
positions and are exposed to certain risks of market fluctuations. In addition,
we are exposed to credit risk and interest rate risk associated with debt
securities. We manage the risks of holding inventories of securities through
certain policies and procedures, including hedging activities related to
certain interest rate risks. Additional information concerning those risks and
our management of them appears under the caption Market Risk Management
beginning on page 40
of the Managements Discussion and Analysis of Results of Operations and
Financial Condition section of our 2009 Annual Report to Shareholders, which
is part of the material from that Report that has been incorporated by reference
into Item 7 of Part II of this report, and in the Credit Risks discussion
beginning on page 21
of this report.
26
In
addition, we earn fees and other income related to our brokerage business and
our management of assets for customers. Declines, disruptions, or precipitous
changes in markets or market prices can adversely affect those revenue sources.
We
have exposure to risks related to securities markets in other respects as well.
We have a number of assets and obligations that are linked, directly or indirectly,
to major securities markets. Significant changes in market performance can have
a material impact upon our assets, liabilities, and financial results. A major
example of that linkage is our obligation to fund our pension plan so that it
may satisfy benefit claims in the future. Our pension funding obligations
generally depend upon actuarial estimates of benefits claims and actuarial
estimates of future plan asset values. To a substantial extent the pension plan
invests its assets in marketable securities. Our obligations to fund the plan
can diminish substantially if the plans investments perform well, and can grow
substantially if those investments perform poorly. Changes in those obligations
generally translate into positive or negative changes in our pension expense,
which in turn affects our financial performance. Although our obligations and
expenses relative to the plan can be affected by many other things, including
changes in our participating employee population and changes to the plan itself,
declines in market performance in recent years will tend to increase our
obligations to fund the pension plan over the next several years. We recently
modified the plan design and will implement a freeze of new benefits after
2012, and we changed the asset allocation investment strategy; we expect these
changes to moderate future volatility in this area.
Venture Capital Risks
Venture
capital investments are inherently volatile. The companies in which we have
invested are much less mature, smaller, and much more unproven than a typical
public company. Accordingly, those investments carry a substantial risk of
loss. Venture capital investments also are inherently illiquid. Success in this
business can only be assessed in the long term and depends to a very large
extent upon the ability of management to find sound investment prospects,
negotiate financially appropriate investment terms, and oversee each investment
as the company uses the venture capital and develops. In the short term,
venture capital losses are not uncommon even if the business proves to be
successful in the long term. Starting in 2008 we began winding down this
business; however, due to the illiquid nature of these investments, the
wind-down process will occur over an extended period.
Regulatory, Legislative, and Legal Risks
We
operate in a heavily regulated industry. The regulatory environment has been
changing more rapidly in recent years, and the regulatory burdens generally
have been increasing, as a result of recent events affecting traditional
banking, mortgage banking, and financial markets generally. We are subject to
many banking, deposit, insurance, insurance brokerage, securities brokerage and
underwriting, and consumer lending regulations in addition to the rules
applicable to all companies publicly traded in the U.S. securities markets and,
in particular, on the New York Stock Exchange. Failure to comply with
applicable regulations could result in financial, structural, and operational
penalties. In addition, efforts to comply with applicable regulations may
increase our costs and/or limit our ability to pursue certain business
opportunities. See Supervision and Regulation in Item 1 of this report,
beginning on page 5
above, for additional information concerning financial industry regulations.
Federal and state regulations significantly limit the types of activities in
which we, as a financial institution, may engage. In addition, we are subject
to a wide array of other regulations that govern other aspects of how we
conduct our business, such as in the areas of employment and intellectual
property. Federal and state legislative and regulatory authorities increasingly
consider changing these regulations or adopting new ones. Such actions could
further limit the amount of interest or fees we can charge, could further
restrict our ability to collect loans or realize on collateral, or could
materially affect us in other ways. Additional federal and state consumer
protection regulations also could expand the privacy protections afforded to
customers of
27
financial
institutions, restricting our ability to share or receive customer information
and increasing our costs.
The
following paragraphs highlight certain specific important risk areas related to
legal matters currently. These paragraphs do not describe these risks
exhaustively, and they do not describe all legal risks that we face currently.
Moreover, the importance of specific risks will grow or diminish as
circumstances change.
Regulatory and Other Pressures Related to Operating
Losses
The
Bank is required to maintain certain regulatory capital levels and ratios, as
discussed under the caption Capital Adequacy beginning on page 7
of this report. If the Banks financial losses continue, or if the regulatory
requirements were to increase, then at some point the Banks ability to
meet those requirements could be adversely affected.
Pressure
to maintain appropriate capital levels and address business needs in a recessionary
environment during times of financial loss
may lead to actions that could be adverse to our shareholders, at least in the
short term. Such actions that have already occurred include the elimination of
our common cash dividend, the sale of our common stock and the issuance of a
common stock warrant at times (in 2008) when market prices were
disadvantageous, and a contraction of our balance sheet (involving sales or
other dispositions of assets or businesses) at times when market values were
depressed. Further such actions could occur.
Federal and
State Regulatory Jurisdiction
Some
state authorities from time to time have challenged, and on occasion continue
to challenge, the position of the OCC that it is the exclusive regulator of
various aspects of national banks or their operating subsidiaries. If one or
more of those challenges were successful, or if Congress or the OCC were to
change the applicable banking laws or regulations, we could be impacted
significantly, due, among other things, to possible increased regulatory
burdens, governmental (including state attorney general) and private party
actions alleging non-compliance with state law, and the expense of tracking and
complying with the different laws and regulations of those states in which we
do business.
In
its 2009 decision known as Cuomo v. Clearing
House Association L.L.C.,
the U.S. Supreme Court determined that the OCC does not have the exclusive
ability to enforce certain state and local laws applicable to certain business
activities of national banks which are not pre-empted by federal law. The Cuomo
decision modified the position of the OCC and lower court decisions that had
affirmed the OCCs regulations regarding its visitorial power, and limited the
application of a 2007 Supreme Court decision known as Watters v. Wachovia Bank N.A. which had
been viewed as indirectly supportive of the OCCs position.
It
is not possible at this time to gauge what effects the Cuomo decision will have upon us. Although
our regional banking business operates primarily in the state of Tennessee, we
have branches in other states, we have customers in several more, and a
component of our long-term strategy is possible further expansion into other
southeastern states. In addition, our capital markets business has customers
and offices in many states, and our mortgage banking and national specialty
lending businesses hold and service (directly or indirectly) assets originated
across the U.S.
Cuomo
holds that the National Bank Act allows states to enforce non-pre-empted laws
through judicial proceedings against national banks. Most states and some
communities have in place various laws pertaining to lending and other business
activities conducted by banks, some of which may not be pre-
28
empted by
federal law. Dealing with potential state and local enforcement activity
relating to non-pre-empted laws would, at a minimum, increase the compliance
costs for national banks that have multi-state operations.
Recent Legislation
In
2008 the U.S. Congress enacted the Emergency Economic Stabilization Act of
2008, sometimes known as EESA. Under authority of EESA the U.S. Department of
the Treasury initiated a Capital Purchase Program, sometimes referred to
as the CPP, which has been implemented in conjunction with the U.S. banking
regulators under an umbrella called the Troubled Asset Relief Program, or
TARP. Under the CPP, the Treasury has purchased preferred stock from approved
financial institutions upon terms and conditions set by the Treasury, and
in late 2008 the Treasury purchased preferred stock from us. In February
2009, the U.S. Congress enacted the American Recovery and Reinvestment Act
of 2009 (the
Recovery Act), which amended portions of EESA relevant to CPP participants.
Additional information concerning our participation in the TARP appears in
EESA Legislation and TARP Participation beginning on page 10 of this
report. Among other things, the Recovery Act significantly restricts incentive
compensation, including bonus and retention awards, for the executives whose
compensation is described in detail in our proxy statement (the named executives)
and for the twenty employees, excluding the named executives, whose total compensation
is the highest (the Highest 20). Extensive new rules were adopted
by the Treasury in 2009 to implement these new restrictions. The new TARP restrictions
on incentives would cease to apply once all of the CPP preferred stock that we
sold to the Treasury is redeemed. The TARP rules have created several new risks
for us and for other institutions that sold preferred stock to the Treasury,
including the following:
|
|
|
|
●
|
Pay Substantially Less Linked to Performance. The
TARP restrictions on incentive compensation may adversely affect our ability
to attract, retain, and motivate our highest performing employees, and
therefore may adversely affect our business. Historically, we have embraced a
pay-for-performance philosophy for employees at many levels of the company.
Starting in 2010 the restriction on incentives will significantly de-link pay
from performance for our named executives. For those de-linked persons,
salary will be a larger component of their compensation package. We have
responded by paying supplemental salary in the form of salary stock units,
which ties the value of the salary increases to the value of our stock.
However, the linkage of SSUs to performance is much weaker than is true for our
traditional cash bonus programs. It is uncertain how a salary-dominated pay
structure for those persons might affect our overall performance during the
period in which the TARP restrictions apply to us.
|
|
|
|
|
●
|
Risks if We Desire to Redeem the CPP Preferred.
Our redemption of the CPP preferred shares would reduce our regulatory
capital and reduce cash on hand. We cannot redeem stock unless our Board and
our regulators conclude it is consistent with safety, soundness, and other
corporate and regulatory considerations. Those considerations could constrain
our ability to redeem the preferred shares, especially in the short term,
unless we create or raise an amount of replacement capital determined by our
regulators to be acceptable. Creating new capital typically relies upon
retaining earnings. Raising new capital could be dilutive to existing
shareholders, and it may not be feasible if, at the time we wish to go to
market, the market is disrupted or perceives us unfavorably.
|
|
|
|
|
●
|
Interest Rates and Other Economic Changes.
The Recovery Act and other legislation in 2009 are expected to result in a
substantial increase in government expenditures and government debt for many
years to come. It is not clear how those events will affect interest rates or
the inflation rate, among other things, but both could rise as a result with
adverse effects on the economy. In particular, as mentioned above, our
businesses are very sensitive to changes in
|
29
|
|
|
|
|
interest
rates and sudden changes in rates often have had an adverse effect on
financial services companies.
|
Recent
Regulatory and Legislative Proposals
At
any given time the U.S. Congress, federal regulators, and the states in which
we do business have pending a host of bills and other proposals that, if
enacted or adopted, could substantially impact our businesses, operations, and
financial results. Due to political and other processes, it is impossible to
predict which proposals will become final and what provisions a final law or
rule may have. The following paragraphs highlight, as examples, two recent
proposals which could have a substantial impact upon us.
|
|
|
|
●
|
The U.S.
Congress is considering significant new regulatory reform legislation.
The legislation has taken a number of different forms, some of which would
significantly alter the regulatory framework applicable to us. Final
legislation could incorporate elements from several older bills and could include
wholly new provisions. For example, one recent version of regulatory reform
legislation would create, among other things, a Consumer Finance Protection
Agency (CFPA). If enacted, the CFPA would have substantial authority over our
consumer finance products and services. The CFPAs rules could conflict
with, and possibly override, our Banks
primary regulator in consumer matters. The CFPAs rule-making authority
could be extensive, including such things as setting terms and conditions on
consumer products services and regulating compensation of our employees who
deal with consumer matters. Such rules could substantially reduce revenues,
increase costs and risks, and otherwise make our consumer businesses less profitable
or unprofitable. In addition, it has been proposed that national banks,
including our bank, be made subject to regulation by all the states in a
number of respects. At a minimum this partial rescission of federal
pre-emption would significantly increase compliance and operating costs, as
well as the risk of unintentional non-compliance.
|
|
|
|
|
●
|
The U.S.
Congress and other governmental bodies recently have considered, and in the
future may enact or adopt, new laws and regulations intended to modify the
terms of outstanding consumer loans in a manner benefiting borrowers at the
expense of lenders, restrict the ability of lenders to make new loans, and
increase the regulatory burdens and legal risks on lenders and loan
servicers. Some initiatives in this area have become final but further, and
more invasive, measures could be adopted. We have a substantial amount of
assets in the form of consumer loans and servicing rights originated in our
now-discontinued national businesses; new rules that compel adverse changes
in loan terms could have a substantial adverse impact on those portfolios.
|
Litigation
Risks
We
face litigation risks from customers, employees, vendors, contractual parties,
and other persons, either singly or in class actions, and from federal or state
regulators. We manage those risks through internal controls, personnel
training, insurance, litigation management, our compliance and ethics
processes, and other means. However, the commencement, outcome, and magnitude
of litigation cannot be predicted or controlled with certainty.
Since
2008 the risks of certain types of litigation have increased. For us, the most
notable of those types are (i) lender liability claims, (ii) claims involving
other types of distressed counterparties, (iii) claims based on declines in our
stock price, and (iv) a new type of lender tort claim. The risk from the first
two types has increased primarily because borrowers and other contractual
counterparties have experienced financial stress, in many cases resulting in an
attempt to obtain funds or relief from a solvent party (us). We expect that
this heightened risk level will not abate until after economic conditions
30
substantially
improve. The elevated risk associated with type (iii) largely is a result of
our volatile stock price performance in 2007 and 2008, and eventually should
fall back to ordinary levels if our stock price continues to stabilize.
Regarding
type (iv), some local governments or agencies have claimed that certain lenders
in their communities have created a public nuisance, engaged in predatory or
discriminatory lending, or otherwise are liable for the alleged consequences of
inappropriate consumer lending, especially home mortgage lending. Lender tort
claims of this sort, where alleged damages are measured on a statistical and/or
city-wide basis, create litigation costs immediately and create a risk of
significant litigation losses for those lenders which are named as defendants
in them. Moreover, claims of this sort adversely alter the business climate and
raise the costs and risks for all lenders, both in the communities involved and
in similar communities across the country.
Holding Company Dividends
Historically
the Corporation has depended upon common dividends from the Bank for cash to
fund common dividends paid to the Corporations shareholders. However, in
part because of the losses experienced by the Bank since 2007, regulatory
constraints generally will prevent the Bank from declaring and paying dividends
to the Corporation in 2010 without regulatory approval. Additional information
concerning those regulatory restrictions on the Bank is discussed in more
detail under the heading Liquidity Management in the Managements
Discussion and Analysis section beginning on page 34 of our 2009 Annual Report
to Shareholders, which section is incorporated herein by reference. In 2008 the
Corporation discontinued paying a quarterly cash dividend to its common
stockholders and began distributing a dividend payable in shares of common
stock. As a TARP participant, we will not be able to reinstate a common cash
dividend unless we obtain regulatory consent, among other things. Additional
information concerning our participation in the TARP appears in EESA Legislation
and TARP Participation beginning on page 10 of this report.
Accounting Risks
Uncertainties in Estimates
The
preparation of our consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
significant estimates that affect the financial statements. Three of our most
critical estimates are: the level of the allowance for credit losses; the level
of repurchase, make-whole, and foreclosure reserves; and the valuation of
mortgage servicing rights. However, other estimates occasionally become highly
significant, especially in volatile situations such as litigation and other
loss contingency matters. Estimates are made at specific points in time;
as actual events unfold, estimates are adjusted accordingly. Due to the inherent
nature of these estimates, it is possible that, at some time in the future,
we may significantly increase the allowance for credit losses and/or sustain
credit losses that are significantly higher than the provided allowance,
or we may recognize a significant provision for impairment of our mortgage
servicing rights, goodwill, or other assets, or we may recognize a significant
decline in the fair value of our mortgage servicing rights, or we may make
some other adjustment that will differ materially from the estimates that
we make today. For additional information concerning the sensitivity of these
estimates, refer to Critical Accounting Policies beginning
on page 52 of the Managements Discussion and Analysis of Results of
Operations and Financial Condition section of our 2009 Annual Report to Shareholders.
Changes to Rules and Practices
In
addition, accounting rules and practices change over time. Changes in
accounting rules can significantly affect how we record and report assets,
liabilities, revenues, expenses, and earnings.
31
Although such
changes generally affect all companies in a given industry, in practice changes
sometimes have a disparate impact due to differences in the circumstances or
business operations of companies within the same industry.
Risks of Expense Control
Expenses
and other costs directly affect our earnings. Our ability to successfully
manage expenses is important to our long-term survival. Many factors can
influence the amount of our expenses, as well as how quickly they grow. As our
businesses change, either by expansion or contraction, additional expenses can
arise from asset purchases, structural reorganization, evolving business
strategies, and changing regulations, among other things. We manage expense
growth and risk through a variety of means, including selectively outsourcing
or multi-sourcing various functions and procurement coordination and processes.
Geographic Risks
Our
capital markets business is national in scope, and our capital markets division
is developing a business presence in selected Asian markets. Also, we continue
to hold substantial assets originated under our now-discontinued national
lending businesses. However, our traditional banking business remains grounded
in, and depends upon, the major Tennessee markets. As a result, although some
of our business operations and assets are exposed to geographically broad
risks, to a significant degree our banking business is exposed to economic,
regulatory, natural disaster, and other risks that primarily impact Tennessee
and neighboring states where we do our traditional banking business. In other
words, if the Tennessee region experiences adversity not shared by other parts
of the country, we are likely to experience adversity to a degree not shared by
those competitors which have a broader footprint.
Non-U.S. Operations Risks
We
have two capital markets offices outside of the United States, in Hong Kong and
Tokyo. Opening and operating non-U.S. offices creates a number of risks.
Specific risks associated with any non-U.S. presence include: the risk that
taxes, licenses, fees, prohibitions, and other barriers and constraints may be
created or increased by the U.S. or other countries that would impact our
ability to operate overseas profitably or at all; the risk that our assets and
operations in a particular country could be nationalized in whole or part
without adequate compensation; the risk that currency exchange rates could move
unfavorably so as to diminish or destroy the U.S. dollar value of assets, or
to enlarge the U.S. dollar value of liabilities, denominated in those currencies; the
risk that legal recourse against foreign counterparties may be limited in
unexpected ways; risks and costs associated with U.S. banking and other regulation
of non-U.S. business activities; and the risk that political
or cultural preferences in a particular host country might become antagonistic
to U.S. companies. Our ability to manage those and other risks will depend
upon a number of factors, including: our ability to recognize and anticipate
differences in cultural and other expectations applicable to customers, employees,
regulators, and vendors and other business partners; our ability to recognize
and act upon opportunities and constraints peculiar to the countries and
cultures in which our offices operate; our ability to recognize and manage
any exchange rate risks to which we are exposed; and our ability to anticipate
the stability of or changes in the political, legal, and monetary systems
of the countries in which our offices operate.
Recent Recession and Disruptions
Starting
in 2007 the U.S. economy in general, and the business environment for financial
services companies in particular, experienced a significant recession. The
recession continued throughout 2009, although by years end there were some
signs that the worst aspects might have begun to ease and in some technical
respects the recession may have ended in 2009. Some geographic areas and
business sectors, and some companies and banks, were hurt more than others, or
experienced the downturn at
32
different
rates or different times. At this time it is not known, and not possible to
predict, the ultimate effects of the recession. Although the recession did not
create new types of risks, we believe it is useful to highlight in this section
some of the key impacts of those events on our business to illustrate how
events beyond our control can adversely affect us.
|
|
|
|
Key Events of the Recession
|
|
|
|
Examples of
some of the most significant events related to the recession include the
following:
|
|
|
|
|
Residential
housing values in the U.S. fell in nearly every market, and in some
highly-populated markets values fell significantly.
|
|
|
|
|
The volume
of residential housing transactions also stagnated or fell, and in some
markets volume fell significantly.
|
|
|
|
|
Except for
conforming loans, which are loan products conforming to standards of
certain government sponsored entities (GSEs), rates for some types of home
mortgage products rose sharply and some mortgage products, with new and more
restrictive credit criteria, became difficult for borrowers to obtain even at
high interest rates, making it difficult or impossible for some borrowers to
refinance an existing mortgage.
|
|
|
|
|
In 2007
private investor demand for new-issue mortgage-backed securities fluctuated
suddenly and sharply, and for some categories of mortgages it disappeared
almost entirely. Although this disruption has since moderated somewhat,
private-sector demand for new-issue non-conforming mortgage-backed securities
has not returned to prior levels.
|
|
|
|
|
Many
companies in the U.S. in many sectors of the economy reported financial
losses or significant reductions in earnings. Banks and other companies in
the financial services industry were, in general, especially hard hit. A
number of banks failed or were acquired under circumstances of substantial
financial stress. Bank failures and acquisitions-under-duress could continue
at elevated levels in 2010.
|
|
|
|
|
In 2008 the
GSEs failed financially and were, in effect, taken over by the federal
government. GSEs are the principal outlets for home mortgages in the U.S.
Substantial new legislation was enacted during 2008 which changed how the
GSEs operate and are regulated. The function of the GSEs as buyers of
so-called conforming mortgages has continued under the new laws. In a related
move, U.S. monetary policy has kept interest rates, especially home-mortgage
rates, at historically low levels. The current functioning of the GSEs and
monetary policy are credited with contributing to recent stabilization of
real estate values in many parts of the U.S. However, if the GSEs activities
and that monetary policy are not maintained in the future, real estate values
could destabilize once again.
|
|
|
|
|
Unemployment
rose as some companies failed and others reduced their staff. Early in 2010
unemployment in the U.S. continues to be elevated on average and in many
regions.
|
|
|
|
|
Because of
these factors, among others, loan defaults, foreclosures, and bankruptcies
rose significantly for U.S. individuals and businesses.
|
|
|
|
|
Due to a
significant rise in bank failures, the deposit insurance fund administered by
the FDIC became depleted. To help maintain the fund, in 2009 the FDIC imposed
a special insurance premium and required banks to prepay 3 years of insurance
premiums.
|
|
|
|
|
In 2008 and
2009 substantial new laws were proposed and, in some cases, enacted, in
response to the recession. Some of those applicable to us are mentioned in
Regulatory, Legislative, and Legal Risks beginning on page 27 of
this report.
|
33
|
|
|
|
Key Impacts of the Recession upon the Corporation and the Bank
|
|
|
|
|
|
|
|
Exit from National Mortgage and Specialty Lending Businesses
|
|
|
|
|
Many
of the significant disruptions in 2007 and 2008 impacted our mortgage
businesses substantially. We decided to exit those businesses except in our
traditional Tennessee-based banking region. In August 2008 we sold our
mortgage origination and servicing platforms, and during that year we exited
the national specialty lending businesses associated with the mortgage
business. These actions had, and will continue to have, a substantial impact
upon our financial results and our balance sheet.
|
|
|
|
|
|
|
|
Substantial Increase in Losses Related to Lending and Assets from
Exited Businesses
|
|
|
|
|
Although
we sold or closed our national mortgage and national specialty lending
businesses, we retain as assets many of the loans that those businesses
created. Most of those loans are secured by residential or other real estate
situated across the U.S. We also retain a substantial portion of the mortgage
servicing rights that we previously serviced, we continue to maintain hedge
positions that we obtain to manage certain risks related to those retained
servicing rights, and we retain the risk of liability to parties with whom
we made contracts in the course of operating those businesses. These legacy
assets and positions continue to impose risks on us. Key risks include:
|
|
|
|
|
|
The loans on
our books have experienced significantly higher default and loss rates
compared to pre-recession years. For example, due to declining home values,
home loans secured on a second-lien basis in a significant number of cases
have little or no collateral value to cover the loan if it defaults.
Accordingly, a default on such a loan today will result in a much higher loss
severity than would have resulted previously.
|
|
|
|
|
The
incidence of parties claiming that loans that we sold to them did not meet
contractual standards has risen. That trend may persist as parties seek to
mitigate losses they experienced while holding those loans by any means
possible.
|
|
|
|
|
The
incidence of counterparty loss on hedges, swaps, and other such instruments
may rise as those counterparties experience financial stress or failure.
|
|
|
|
Other trends
adverse to us may emerge from these legacy assets and positions as
counterparties are stressed by economic conditions, and of course some of
these impacts apply to continuing businesses. Over time those losses and
risks related to legacy items should diminish since those exited businesses
will not generate new loans and new contracts, but it is not possible to
predict when that may occur.
|
|
Our
other lending businesses remain in place, and we are constantly seeking ways
to prudently expand them. We have experienced a significant increase in
default and loss rates in most of those products as well, and demand for new
loans diminished as business activity in general became more subdued. We
adjusted our underwriting, credit review, and loss mitigation processes and
we will continue to seek ways to manage risk and minimize loss. However, we
remain in the business of lending and that business carries more risk at
present than it has in recent years past. That higher level of risk could
increase further, and in any case that risk is likely to continue at an
elevated level at least until the economy improves significantly in our
lending markets.
|
|
We
regularly review and adjust the allowance for loan losses for adequacy
considering economic conditions and trends, collateral values and credit quality
indicators, including past charge-off experience and levels of past due loans
and nonperforming assets as well as changes in housing price appreciation and
depreciation. Determining the appropriateness of the allowance is complex and
requires judgment by management about the effects of matters that are
inherently uncertain. That process was made
|
34
significantly more difficult
during the recession as rapid changes in business and economic conditions
required us to adjust and re-adjust our methods.
|
|
|
|
|
|
|
Decrease in Business Activities
|
The
slowdown reduced business activity, including activity which we finance by
making loans and activity from which we earn fee revenues. Some activities fell
substantially or ended completely, notably (for us) certain capital markets
structured finance activities and certain fee-generating deposit account
activities. All of these impacts reduce our revenues and our opportunities for
new business.
|
|
|
|
|
|
|
Net Interest Margin Compression
|
Relatively
low interest rates in the U.S. could stimulate new demand for consumer and
business loans and business activity in general. Low rates could cause the
recession to end more quickly and more vigorously than otherwise would be the
case. However, in recent quarters falling rates compressed our net interest
margin, which negatively affected our financial results, and could do so again.
As
mentioned under Financing, Funding, and Liquidity Risks beginning
on page 24 above, we rely significantly upon deposits for liquidity and to fund
our business operations. Generally, deposits are a relatively stable and
cost-effective source of funding for banks due to many factors, including FDIC
deposit insurance. Changes in deposit levels can be influenced substantially
by many factors, including customer satisfaction and the interest rates offered
to deposit customers. Those rates, in turn, generally reflect prevailing market
conditions.
During
2008, the media occasionally highlighted the risk of an extreme form of deposit
run-off, sometimes referred to as a run on the bank. More moderate
levels of run-off can adversely affect banks but are substantially less dramatic
and have been significantly less reported. The increased level of public concern
created by the recession, punctuated by media reports of potential or actual
bank failures, increased the risk of some level of deposit run-off for all
depositary institutions. We experienced a degree of run-off in the summer and
autumn of 2008 which was not dramatic but could have started a negative trend.
Late in 2008 FDIC insurance coverage levels were increased on a temporary
basis; run-off activity abated somewhat, and in fact our deposits grew during
most of 2009. However, the run-off risk is likely to continue to be elevated
until it is clear to the public that a significant economic recovery is
underway. Moreover, some degree of deposit run off could occur if FDIC coverage
amounts revert to pre-2008 levels. To manage run-off risk we maintain cash reserves
and access to other liquidity sources to accommodate normal and, to a degree,
unusual withdrawal activity, and we strive to respond promptly and accurately
to customer concerns that might arise.
ITEM 1B
UNRESOLVED STAFF COMMENTS
None.
ITEM 2
PROPERTIES
The
Corporation has no properties that it considers materially important to its
financial statements.
35
ITEM 3
LEGAL PROCEEDINGS
The Contingencies section
from Note 18 to the Consolidated Financial Statements appearing on pages 110
and 111 of the Corporations 2009 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no
matters submitted during the fourth quarter of 2009 to a vote of security holders through the solicitation
of proxies or otherwise.
SUPPLEMENTAL PART I INFORMATION
Executive Officers of the Registrant
The
following is a list of executive officers of the Corporation as of January 31,
2010. The executive officers generally are appointed at the April meeting of
the Corporations Board of Directors following the annual meeting of shareholders
for a term of one year and until their successors are elected and qualified. As
shown in more detail below, during each of the last five fiscal years two of
the executive officers were employed principally by the Corporation or its
subsidiaries in an executive capacity (Messrs. Burkett and Keen), three others
were employed by the Corporation or its subsidiaries but did not hold an
executive position during the entire period (Messrs. Gusmus, Olivier, and
Tuggle), and the remainder were first employed by the Corporation during that
period (Messrs. Daniel, Jordan, Losch, and Valine).
|
|
|
Name and Age
|
|
Current (Year First Elected to Office) and Recent Offices and Positions
|
|
|
|
|
|
|
Charles G. Burkett
|
|
President
Banking of the Corporation and the Bank (2004)
|
|
|
|
Age: 59
|
|
Prior to November, 2005,
Mr. Burkett was President First Tennessee Financial Services and Executive
Vice President of the Corporation and the Bank. Prior to April 2004 Mr.
Burkett was President Retail Financial Services/Memphis Financial Services.
|
|
|
|
John M. Daniel
|
|
Executive Vice
President Human Resources of the Corporation and the Bank (2006)
|
|
|
|
Age: 55
|
|
From January 2001 to
September 2006, Mr. Daniel was Executive Vice President in charge of Human
Resources for Regions Financial Corporation.
|
|
|
|
Frank J. Gusmus
Jr.
|
|
President FTN
Financial of the Corporation and the Bank (2008)
|
|
|
|
Age: 55
|
|
From August 2008 to
October 2008, Mr. Gusmus served as Interim President FTN Financial of the
Corporation and Bank. Prior to that time over the past five years Mr. Gusmus
held the following positions with the Bank or a subsidiary: from July 2007 to
August 2008, Financial Services Manager, FTN Financial; from August 2006 to
July 2007, Division Manager of Capital Markets, FTN Financial and President,
FTN Financial Securities Corp.; from March 2005 to August 2006, Financial
Services Manager, FTN Financial; and prior to March 2005, Chief Financial
Officer, FTN Financial.
|
36
|
|
|
D. Bryan Jordan
|
|
President and
Chief Executive Officer of the Corporation and the Bank (2008)
|
|
|
|
Age: 48
|
|
From May 2007 until
September 2008 Mr. Jordan was Executive Vice President and Chief Financial
Officer of the Corporation and the Bank. From 2000 until 2002 Mr. Jordan was
Comptroller, and from 2002 until April 2007 Mr. Jordan was Chief Financial
Officer, of Regions Financial Corp. During that time he was also an Executive
Vice President and, from November 2006, a Senior Executive Vice President of
Regions.
|
|
|
|
James F. Keen
|
|
Executive Vice
President (2003) Chief Accounting Officer of the Corporation and the Bank
(2008) and principal accounting officer
|
Age: 59
|
|
|
|
|
Mr. Keen was Corporate
Controller of the Corporation from 1988 until July 2008, and of the Bank from
2001 until July 2008. In that capacity Mr. Keen was the Corporations
principal accounting officer.
|
|
|
|
William C. Losch
III
|
|
Executive Vice
President Chief Financial Officer of the Corporation and the Bank (2009)
|
|
|
|
Age: 39
|
|
From 1998 to January 2009,
Mr. Losch was with Wachovia Corporation. Most recently he served as Senior
Vice President and Chief Financial Officer of its Retail and Small Business
Banking unit from 2003 to 2005, and as Senior Vice President and Chief
Financial Officer of its General Bank unit from 2006 to January 2009.
|
|
|
|
James Gregory
Olivier
|
|
Executive Vice
President Chief Credit Officer of the Corporation and the Bank (2007)
|
|
|
|
Age: 47
|
|
From December 2003 to June
2007, Mr. Olivier held the position of Executive Vice President Credit Risk
Manager for the Corporation and Bank. Prior to that time he served as Senior
Vice President and Wholesale Credit Products Manager for Wachovia Corp.
|
|
|
|
Charles T. Tuggle,
Jr.
|
|
Executive Vice
President General Counsel of the Corporation and the Bank (2008)
|
|
|
|
Age: 61
|
|
From October 2003 to 2007
Mr. Tuggle was an Executive Vice President of the Banks FTN Financial
division; during that time prior to 2007 Mr. Tuggle served as Chief Risk
Officer of FTN Financial. From 1998 to October 2003 Mr. Tuggle was Chairman
and Chief Executive Officer of the law firm Baker, Donelson, Bearman,
Caldwell & Berkowitz, PC.
|
|
|
|
Yousef A. Valine
|
|
Executive Vice
President Chief Risk Officer (2010) of the Corporation and the Bank
|
|
|
|
Age: 50
|
|
From June to December
2009, Mr. Valine served as Executive Vice President Corporate Risk
Management of the Corporation and the Bank. From 1985 until June 2009, Mr.
Valine was with Wachovia Corporation, most recently serving as Executive Vice
President and Chief Operating Officer of its enterprise-wide risk management
division from 2007 until June 2009, as the head of its Institutional Risk
Group in 2006, and as its chief Operational Risk officer in 2005.
|
Declaration of Covenant
Relating To
The Banks Class A Non-Cumulative Perpetual Preferred Stock
On
March 23, 2005, the Bank issued 300,000 shares of Class A Non-Cumulative
Perpetual Preferred Stock (Bank Preferred Stock). That issuance was the
subject of the Corporations Current Report on Form 8-K filed March 24, 2005.
The Bank made a Declaration of Covenant dated as of July 20,
37
2005
(Declaration) in connection with the Bank Preferred Stock. The Declaration
was the subject of Item 8.01 of the Corporations Current Report on Form 8-K
filed July 22, 2005. Under the Declaration, the Bank has promised to redeem shares
of the Bank Preferred Stock only if and to the extent that the redemption price
is equal to or less than the New Equity Amount as of the date of redemption.
New Equity Amount means, on any date, the net proceeds to the Bank or
subsidiaries of the Bank received during the six months prior to such date from
new issuances of common stock of the Bank or of other securities or
combinations of securities that
|
|
|
|
(i)
|
qualify as
Tier 1 capital of the Bank, and
|
|
|
|
|
(ii)
|
as
reasonably determined in good faith by the Banks Board of Directors, (x) on
a liquidation or dissolution of the Bank rank pari passu with or junior to the Bank Preferred Stock (or,
if all of the Bank Preferred Stock has been redeemed, would have ranked pari passu with or junior to the Bank
Preferred Stock had it remained outstanding), (y) are perpetual, with no
prepayment obligation on the part of the issuer, whether at the election of
holders or otherwise (although such securities may be subject to early
redemption at the option of the issuer), and (z) dividends or other
distributions on which are non-cumulative;
|
provided, however, that the net proceeds of such
securities or combinations of securities (A) if issued to any affiliate of the
Bank other than the Corporation, shall not qualify as a New Equity Amount and
(B) if issued to the Corporation shall qualify as a New Equity Amount only if
such securities or combinations of securities have been purchased by the
Corporation with the net proceeds from new issuances of common stock of the
Corporation or of securities or combinations of securities by the Corporation
during such six-month period that
|
|
|
|
(i)
|
qualify as
Tier 1 capital of the Corporation and
|
|
|
|
|
(ii)
|
as
reasonably determined in good faith by the Corporations Board of Directors,
(x) on a liquidation or dissolution of the issuer rank junior to all
indebtedness for money borrowed and claims of other creditors of the issuer,
(y) are perpetual, with no prepayment obligation on the part of the issuer,
whether at the election of holders or otherwise (although such securities may
be subject to early redemption at the option of the issuer), and (z)
dividends or other distributions on which are non-cumulative.
|
The
covenants in the Declaration run in favor of persons that buy, hold, or sell
debt of the Bank during the period that such debt is Covered Debt. The Banks
5.05% Subordinated Bank Notes Due January 15, 2015 (2015 Notes) are the
initial Covered Debt. Other debt will replace the 2015 Notes as the Covered Debt
under the Declaration on the earlier to occur of (x) the date two years prior
to the 2015 Notes maturity, or (y) the date the Bank gives notice of a
redemption of the 2015 Notes such that, or the date 2015 Notes are repurchased
in such an amount that, the outstanding principal amount of 2015 Notes is or
will become less than $100 million.
The
Declaration is subject to various additional terms and conditions. The
Declaration may be terminated if the holders of at least 51% by principal
amount of the Covered Debt so agree, or if the Bank no longer has any long-term
indebtedness rated by a nationally recognized statistical rating organization.
The
summary description of the Declaration in this report is qualified in its
entirety by the full terms of the Declaration, which are controlling.
38
PART II
Note on Page Number References
In
this report, references to specific pages in the Corporations 2009 Annual
Report to shareholders, or to specific pages of its consolidated financial
statements or the notes thereto, relate to page numbers appearing in Exhibit 13
to this report. The Exhibit 13 page numbers do not necessarily correspond to
page numbers appearing in the printed 2009 Annual Report to shareholders.
ITEM 5
MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
(a)
|
Market for
the Corporations Common Stock:
|
The
Corporations common stock, $0.625 par value, is listed and trades on the New
York Stock Exchange, Inc. under the symbol FHN. As of December 31, 2009, there
were 7,340 shareholders of record of the Corporations common stock. Additional
information called for by this Item is incorporated herein by reference to:
|
|
|
|
|
|
(i)
|
the Summary
of Quarterly Financial Information Table (Table 25)(page 61), the Selected
Financial and Operating Data Table (page 2), and the Liquidity Management
subsection (beginning on page 34) of the Managements Discussion and Analysis
of Results of Operations and Financial Condition section contained in the
Corporations 2009 Annual Report to Shareholders,
|
|
|
|
|
|
|
(ii)
|
Note 18 to
the Consolidated Financial Statements beginning on page 110 of the 2009
Annual Report to Shareholders, and
|
|
|
|
|
|
|
(iii)
|
the Payment
of Dividends and Transactions with Affiliates subsections
beginning on pages 6 and 7, respectively, of Item 1 of Part I of this report
on Form 10-K.
|
The
Corporation has provided the information required by Item 201(e) of Regulation
S-K on page 162 of its 2009 Annual Report to Shareholders under the caption
Total Shareholder Return Performance Graph. That information is not filed
with this report and is not incorporated by reference herein.
|
|
|
|
(b)
|
Sale of
Unregistered Equity Securities:
|
During 2009
the Corporation sold no equity securities without registration under the
Securities Act of 1933, as amended.
Repurchases
are made in the open market or through privately negotiated transactions and
are subject to market conditions, accumulation of excess equity, prudent
capital management, and regulatory restrictions. Pursuant to Board authority,
the Corporation may repurchase shares from time to time for general purposes
and for its stock option and other compensation plans, and will evaluate the
level of capital and take action designed to generate or use capital as
appropriate for the interests of the shareholders. Since becoming a participant
in the U.S. Treasurys capital purchase program, all purchase authorization
is subject to substantial restrictions under that program. See EESA Legislation
& TARP Participation beginning on page 10 of this report for additional
information concerning those restrictions. Additional information concerning
repurchase activity during the final three months of 2009 is presented in Table
13, and the surrounding notes and other text, of the Managements Discussion
and Analysis of
39
Results of
Operations and Financial Condition section appearing on pages 30 and 31 of the
Corporations 2009 Annual Report to shareholders, which information is
incorporated herein by this reference.
ITEM 6
SELECTED FINANCIAL DATA
The
information called for by this Item is incorporated herein by reference to the
Selected Financial and Operating Data table appearing on page 2 of the
Corporations 2009 Annual Report to shareholders.
ITEM 7
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The
information called for by this Item is incorporated herein by reference to the
Managements Discussion and Analysis of Results of Operations and Financial
Condition section, Glossary section, and the Consolidated Historical Statements
of Income and Consolidated Average Balance Sheets and Related Yields and Rates
tables appearing on pages 3-66 and 158-161 of the Corporations 2009 Annual
Report to Shareholders.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
information called for by this Item is incorporated herein by reference to the
Interest Rate Risk Management subsection of Note 25 to the Consolidated
Financial Statements, and to the Risk Management-Interest Rate Risk
Management subsection of the Managements Discussion and Analysis
of Results of Operations and Financial Condition section, both of which appear,
respectively, on pages 151-152 and on pages 32-34 of the Corporations 2009
Annual Report to Shareholders.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by this Item is incorporated herein by reference to the
Consolidated Financial Statements and the notes thereto and to the Summary of
Quarterly Financial Information table appearing, respectively, on pages 70-157
and on page 61 of the Corporations 2009 Annual Report to Shareholders.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures. The Corporations management, with the participation
of the Corporations Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Corporations
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))
as of the end of the period covered by the annual report. Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that the
40
Corporations
disclosure controls and procedures are effective to ensure that material information
relating to the Corporation and the Corporations consolidated subsidiaries is
made known to such officers by others within these entities, particularly
during the period this annual report was prepared, in order to allow timely
decisions regarding required disclosure.
Managements
Report on Internal Control over Financial Reporting. The report of
management required by Item 308(a) of Regulation S-K, and the attestation
report required by Item 308(b) of Regulation S-K, appear at pages 67-68 of the
Corporations 2009 Annual Report to Shareholders and are incorporated herein by
this reference.
Changes
in Internal Control over Financial Reporting. There have not been any changes
in the Corporations internal control over financial reporting during the
Corporations fourth fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Corporations internal control over
financial reporting.
ITEM 9A(T)
CONTROLS AND PROCEDURES
Not
applicable.
ITEM 9B
OTHER INFORMATION
There
is no information required to have been disclosed in a report on Form 8-K
during the fourth quarter of 2009 that has not been reported.
On
February 26, 2010, the Compensation Committee of the Board of Directors of
the Corporation amended the terms of the Corporations Salary Stock
Unit Program. The Program provides that salary stock units, or SSUs, are
treated the same as cash salary for certain purposes, including pension and
other retirement plans and life insurance programs. The amendment places
a ceiling of $200,000 per person per year on the amount of SSUs which can
be treated as cash salary for determining any benefits. SSUs are not treated
as cash salary for other purposes, including under severance agreements and
programs. The amendment does not alter the excluded treatment of SSUs for
those other purposes.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The
information called for by this Item as it relates to directors and nominees for
director of the Corporation, the Audit Committee of the Corporations Board of
Directors, members of the Audit Committee, and audit committee financial expert
is incorporated herein by reference to the Corporate Governance and Board
Matters section and the Vote Item No. 1Election of Directors section of the
Corporations 2010 Proxy Statement (excluding the Audit Committee Report, the
statements regarding the existence, availability, and location of the Audit
Committees charter, and the Compensation Committee Report). The information
required by this Item as it relates to executive officers of the Corporation is
incorporated herein by reference to the information provided under the heading
Executive Officers of the Registrant in the Supplemental Part I Information
following Item 4 of this Report. The information required by this Item as it
relates to compliance with Section 16(a) of the Securities Exchange Act of 1934
is incorporated herein by reference to the Section 16(a) Beneficial Ownership
Reporting Compliance section of the 2010 Proxy Statement.
In
2009 there were no material amendments to the procedures, described in the
Corporations 2010 Proxy Statement, by which security holders may recommend
nominees to the Corporations Board of Directors.
41
The
Corporations Board of Directors has adopted a Code of Ethics for Senior
Financial Officers that applies to the Chief Executive Officer, Chief Financial
Officer, and Chief Accounting Officer and also applies to all professionals
serving in the financial, accounting, or audit areas of the Corporation and its
subsidiaries. A copy of the Code has been filed (or incorporated by reference)
as Exhibit 14 to this report and is posted on the Corporations current
internet website (www.fhnc.com). (Click on Investor Relations, and then
Corporate Governance.) A paper copy of the Code is available without charge
upon written request addressed to the Corporate Secretary of the Corporation at
its main office, 165 Madison Avenue, Memphis, Tennessee 38103. The Corporation
intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K
related to Code amendments or waivers by posting such information on the
Corporations internet website, the address for which is listed above.
ITEM 11
EXECUTIVE COMPENSATION
The
information called for by this Item is incorporated herein by reference to the
Compensation Committee Interlocks and Insider Participation, Executive
Compensation, and Director Compensation sections of the Corporations 2010
Proxy Statement.
The
Corporation has provided the information required by Item 407(e)(5) of
Regulation S-K in its 2010 Proxy Statement under the caption Compensation
Committee Report. That information is not filed with this report and is not
incorporated by reference herein.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
The
information required by this Item pursuant to Item 201(d) of Regulation S-K is
incorporated herein by reference to the Equity Compensation Plan Information
section of the Corporations 2010 Proxy Statement, immediately following Vote
Item No. 3.
Beneficial Ownership of Corporation Stock
The
information required by this Item pursuant to Item 403(a) and (b) of Regulation
S-K is incorporated herein by reference to the Stock Ownership Information
section of the Corporations 2010 Proxy Statement.
Change in Control Arrangements
The
Corporation is unaware of any arrangements which may result in a change in
control of the Corporation.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The
information called for by this Item is incorporated herein by reference to
the Independence and Categorical Standards and the Transactions
with Related Persons sections
of the 2010 Proxy Statement, which sections are incorporated herein by reference.
The Corporations
independent directors and nominees are identified in the second paragraph
of the Independence
and Categorical Standards section
of the 2010 Proxy Statement.
42
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
In
2003, the Audit Committee of the Board of Directors adopted a policy providing
for pre-approval of all audit and non-audit services to be performed by our
registered public accounting firm that performs the audit of our consolidated
financial statements that are filed with the SEC. Services either may be
approved in advance by the Audit Committee specifically on a case-by-case basis
(specific pre-approval) or may be approved in advance (advance
pre-approval). Advance pre-approval requires the Committee to identify in
advance the specific types of service that may be provided and the fee limits
applicable to such types of service, which limits may be expressed as a limit
by type of service or by category of services. Unless the type of service to be
provided by the Corporations registered public accounting firm has received
advance pre-approval under the policy and the fee for such service is within
the limit pre-approved, the service will require specific pre-approval by the
Committee. The terms of and fee for the annual audit engagement must receive
the specific pre-approval of the Committee. Audit, Audit-related, Tax,
and All Other services, as those terms are defined in the policy, have the
advance pre-approval of the Committee, but only to the extent those services
have been specified by the Committee and only in amounts that do not exceed the
fee limits specified by the Committee. Such advance pre-approval is to be for a
term of 12 months following the date of pre-approval unless the Committee
specifically provides for a different term. Unless the Committee specifically
determines otherwise, the aggregate amount of the fees pre-approved for All
Other services for the fiscal year must not exceed seventy-five percent (75%)
of the aggregate amount of the fees pre-approved for the fiscal year for Audit
services, Audit-related services, and those types of Tax services that
represent tax compliance or tax return preparation. The policy delegates the
authority to pre-approve services to be provided by the Corporations
registered public accounting firm, other than the annual audit engagement and
any changes thereto, to the Chairperson of the Committee. The Chairperson may
not, however, make a determination that causes the 75% limit described above to
be exceeded. Any service pre-approved by the Chairperson will be reported to
the Committee at its next regularly scheduled meeting.
Information
regarding fees billed to the Corporation by KPMG LLP for the two most recent
fiscal years is incorporated herein by reference to the Vote Item No. 5
section of the 2010 Proxy Statement. No services were approved by the Audit
Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
PART IV
Note on Page Number References
In
this report, references to specific pages in the Corporations 2009 Annual
Report to shareholders, or to specific pages of its consolidated financial
statements or the notes thereto, relate to page numbers appearing in Exhibit 13
to this report. The Exhibit 13 page numbers do not necessarily correspond to
page numbers appearing in the printed 2009 Annual Report to shareholders.
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following
documents are filed as a part of this Report:
Financial
Statements:
|
|
|
|
|
Page 70*
|
1.
|
Consolidated
Statements of Condition as of December 31, 2009 and 2008.
|
43
|
|
|
|
|
Page 71*
|
2.
|
Consolidated
Statements of Income for the years ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
Pages 72-73*
|
3.
|
Consolidated
Statements of Shareholders Equity for the years ended December 31, 2009,
2008, and 2007.
|
|
|
|
|
|
Page 74*
|
4.
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007.
|
|
|
|
|
|
Pages
75-157*
|
5.
|
Notes to the
Consolidated Financial Statements
|
|
|
|
|
|
Pages 68-69*
|
6.
|
Reports of
Independent Registered Public Accounting Firm
|
|
|
|
|
*
|
The
consolidated financial statements of the Corporation, the notes thereto, and
the reports of independent public accountants, as listed above, are
incorporated herein by reference to the indicated pages of the Corporations
2009 Annual Report to Shareholders.
|
Financial
Statement Schedules: Not applicable.
Exhibits:
|
|
|
Exhibits
marked with an * represent a management contract or compensatory plan or
arrangement required to be identified and filed as an exhibit.
|
|
|
|
Exhibits
marked with a + are filed herewith.
|
|
|
|
The phrase
2009 named executive officers refers to those executive officers whose 2009
compensation is described in detail in the Corporations 2010 Proxy
Statement.
|
|
|
3.1
|
Restated
Charter of the Corporation, incorporated herein by reference to Exhibit 3.1
to the Corporations Current Report on Form 8-K filed April 24, 2009.
|
|
|
3.2
|
Bylaws of
First Horizon National Corporation, as amended and restated January 19, 2010,
incorporated herein by reference to Exhibit 3.2 to the Corporations Current
Report on Form 8-K filed January 22, 2010.
|
|
|
3.3
|
Warrant to
Purchase Common Stock dated November 14, 2008 issued in connection with sale
of preferred stock under the Troubled Asset Relief Program, incorporated
herein by reference to Exhibit 3.2 to the Corporations Current Report on
Form 8-K filed November 17, 2008.
|
|
|
4.1
|
The
Corporation and certain of its consolidated subsidiaries have outstanding
certain long-term debt. See Note 10 in the Corporations 2009 Annual Report
to Shareholders. At December 31, 2009, none of such debt exceeded 10% of the
total assets of the Corporation and its consolidated subsidiaries. Thus,
copies of constituent instruments defining the rights of holders of such debt
are not required to be included as exhibits. The Corporation agrees to
furnish copies of such instruments to the Securities and Exchange Commission
upon request.
|
|
|
4.2
|
Three
principal agreements related to a note program for First Tennessee Bank
National Association (the Bank): (i) form of Distribution Agreement dated
February 18, 2005 among the registrant, the Bank, and the agents therein
named; (ii) form of Fiscal and Paying Agency
|
44
|
|
|
Agreement
dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank,
National Association; and (iii) form of Interest Calculation Agreement dated
as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National
Association. All such agreements are incorporated herein by reference to
Exhibit 4(c) to the Corporations Current Report on Form 8-K filed February
25, 2005.
|
|
|
*Deferral
Plans and Related Exhibits
|
|
|
*10.1(a1)
|
Directors
and Executives Deferred Compensation Plan, as amended and restated,
incorporated herein by reference to Exhibit 10(h) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of
individual agreement, incorporated herein by reference to Exhibit 10(h) to
the Corporations 1996 Annual report on Form 10-K.
|
|
|
*10.1(a2)+
|
Rate
Applicable to Directors and Executive Officers Under the Directors and
Executives Deferred Compensation Plan.
|
|
|
*10.1(a3)
|
Form of
Amendment to Directors and Executives Deferred Compensation Plan,
incorporated herein by reference to Exhibit 10.1(a3) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
|
|
*10.1(b)
|
Director
Deferral Agreements with schedule, incorporated herein by reference to
Exhibit 10(k) to the Corporations 1992 Annual Report on Form 10-K and
Exhibit 10(j) to the Corporations 1995 Annual Report on Form 10-K.
|
|
|
*10.1(c)
|
Form of
First Horizon National Corporation Deferred Compensation Plan as Amended and
Restated, incorporated herein by reference to Exhibit 10.1(c) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended September
30, 2007.
|
|
|
*10.1(d)
|
[1995]
Non-Employee Directors Deferred Compensation Stock Option Plan, as restated
for amendments through December 15, 2008, incorporated herein by reference to
Exhibit 10.1(d) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
|
|
|
*10.1(e)
|
2000
Non-Employee Directors Deferred Compensation Stock Option Plan, as restated
for amendments through December 15, 2008, incorporated herein by reference to
Exhibit 10.1(e) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
|
|
|
*10.1(f)
|
[1991] Bank
Advisory Director Deferral Plan, as restated for amendments through December
15, 2008, incorporated herein by reference to Exhibit 10.1(f) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.1(g)
|
[1996] Bank
Director and Advisory Board Member Deferral Plan, as restated for amendments
through December 15, 2008, incorporated herein by reference to Exhibit
10.1(g) to the Corporations Quarterly Report on Form 10-Q for the quarter
ended June 30, 2009.
|
|
|
*10.1(h)
|
2002 Bank
Director and Advisory Board Member Deferral Plan, as restated for amendments
through December 15, 2008, incorporated herein by reference to Exhibit
10.1(h) to the Corporations Quarterly Report on Form 10-Q for the quarter
ended June 30, 2009.
|
|
|
*10.1(i)
|
Form of
First Horizon Deferred Compensation Plan as Amended and Restated,
incorporated herein by reference to Exhibit 10.1(i) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
45
|
|
*10.1(j)
|
Form of FTN
Financial Deferred Compensation Plan Amended and Restated Effective January
1, 2008, incorporated herein by reference to Exhibit 10.1(j) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended September
30, 2007.
|
|
|
*10.1(k)
|
Form of
Deferred Compensation Agreement used under the registrants 2003 Equity
Compensation Plan and First Tennessee National Corporation Non-Qualified
Deferred Compensation Plan, along with form of Salary, Commission, and Annual
Bonus Deferral Programs Overview, form of Deferred Stock Option (DSO) Program
Summary, and description of share receipt deferral feature, incorporated
herein by reference to Exhibit 10(z) to the Corporations Current Report on
Form 8-K dated January 3, 2005.
|
|
|
*10.1(l)
|
Description
of April 19, 2005 amendments to the First Horizon National Corporation
Nonqualified Deferred Compensation Plan (formerly First Tennessee National
Corporation Nonqualified Deferred Compensation Plan), incorporated herein by
reference to Exhibit 10.1(l) to the Corporations Current Report on Form 8-K
dated April 19, 2005.
|
|
|
*10.1(m)
|
Description
of changes to options granted in January 2005 to certain employees in
connection with deferrals of salary earned in 2004, incorporated herein by
reference to Exhibit 10.1(m) to the Corporations Current Report on Form 8-K
dated October 19, 2005.
|
|
|
*Stock-Based
Incentive Plans
|
|
|
*10.2(a)
|
1990 Stock
Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments,
incorporated herein by reference to Exhibit 10(f) to the Corporations 1992,
1996, 1997 and 2000 Annual Reports on Form 10-K.
|
|
|
*10.2(b)
|
1992
Restricted Stock Incentive Plan, as restated for amendments through December
15, 2008, incorporated herein by reference to Exhibit 10.2(b) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.2(c)
|
1995
Employee Stock Option Plan, as restated for amendments through December 15,
2008, incorporated herein by reference to Exhibit 10.2(c) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.2(d)
|
1997
Employee Stock Option Plan, as restated for amendments through December 15,
2008, incorporated herein by reference to Exhibit 10.2(d) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
|
|
|
*10.2(e)
|
2000
Employee Stock Option Plan, as restated for amendments through December 15,
2008, incorporated herein by reference to Exhibit 10.2(e) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.2(f)
|
2003 Equity
Compensation Plan, as restated for amendments through December 15, 2008,
incorporated herein by reference to Exhibit 10.2(f) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
|
|
|
46
|
|
*TARSAP/PARSAP
Restricted Stock Agreements and Related Documents |
|
|
*10.3(a) |
Form of
accelerated (performance based) Restricted Stock Agreement under the 1992
Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit
10.3(a) to the Corporations 2004 Annual Report on Form 10-K. |
|
|
*10.3(b) |
Form of
accelerated (performance based) Restricted Stock Agreement under the 2003
Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b)
to the Corporations 2004 Annual Report on Form 10-K. |
|
|
*10.3(c) |
Description
of performance criteria related to TARSAP/PARSAP awards granted prior to
2005, incorporated herein by reference to Exhibit 10.3(c) to the
Corporations 2004 Annual Report on Form 10-K. |
|
|
*10.3(d) |
Form of 2005
PARSAP Agreement (for executive officers other than the CEO), incorporated
herein by reference to Exhibit 10.3(e) to the Corporations Quarterly Report
on Form 10-Q for the quarter ended March 31, 2005. |
|
|
*10.3(e) |
Description
of performance criteria related to 2005 PARSAP Agreement, incorporated herein
by reference to Exhibit 10.3(f) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2005. |
|
|
*Performance-Based
Incentive Award Documents |
|
|
*10.4(a) |
Form of
Performance Stock Units Grant Notice [2007], incorporated herein by reference
to Exhibit 10.4(f) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007. |
|
|
*10.4(b1) |
Form of
Performance Restricted Stock award grant notice under 2003 Equity Compensation
Plan [2008], incorporated herein by reference to Exhibit 10.5(s) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended March 31,
2008. |
|
|
*10.4(b2) |
Text of
Notice Announcing Modification of Performance Goal Calculation Method Related
to 2008 Executive Awards of Performance Restricted Stock, incorporated herein
by reference to Exhibit 10.4(e2) to the Corporations Annual Report on Form
10-K for the year ended December 31, 2008. |
|
|
*10.4(c) |
Form of
Performance Stock Units Notice of Grant [2009], incorporated herein by
reference to Exhibit 10.4(f) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2009. |
|
|
*Other
Stock-Based Incentive Plan Agreements and Related Documents |
|
|
*10.5(a) |
Form of
Restricted Stock Agreement for Non-Employee Director used under the 2003
Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa)
to the Corporations Current Report on Form 8-K dated January 18, 2005. |
|
|
*10.5(b) |
Form of
Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated
herein by reference to Exhibit 10.5(c) to the Corporations 2004 Annual
Report on Form 10-K. |
47
|
|
*10.5(c)
|
Form of
Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating
to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to
the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.5(d)
|
Form of
Stock Option Grant Notice, incorporated herein by reference to Exhibit
10.5(e) to the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.5(e)
|
Form of
Stock Option Reload Grant Notification, incorporated herein by reference to
Exhibit 10.5(f) to the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.5(f)
|
Form of
Stock Option Grant Notice (used for executive officers during 2005),
incorporated herein by reference to Exhibit 10.5(g) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
|
|
|
*10.5(g)
|
Form of
Restricted Stock Grant Notice (used during 2005), incorporated herein by
reference to Exhibit 10.5(h) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2005.
|
|
|
*10.5(h)
|
Form of
Management Stock Option Grant Notice (used for executive officers during
2006), incorporated herein by reference to Exhibit 10.5(j) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2006.
|
|
|
*10.5(i)
|
Form of
Management Restricted Stock Grant Notice (used for executive officers during
2006), incorporated herein by reference to Exhibit 10.5(k) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2006.
|
|
|
*10.5(j)
|
Sections of
Director Policy pertaining to compensation, incorporated herein by reference
to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed April
24, 2009.
|
|
|
*10.5(k)
|
First
Tennessee Stock Option Enhancement Program, incorporated herein by reference
to Exhibit 10.5(o) to the Corporations Annual Report on Form 10-K for the
year ended December 31, 2006.
|
|
|
*10.5(l)
|
Form of
Management Stock Option Grant Notice [2007], incorporated herein by reference
to Exhibit 10.5(p) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007.
|
|
|
*10.5(m)
|
Form of
stock option grant notice used for special grant to Mr. Jordan in lieu of
bonus, incorporated herein by reference to Exhibit 10.5(r) to the
Corporations Current Report on Form 8-K filed February 29, 2008.
|
|
|
*10.5(n)
|
Form of
Retention Restricted Stock award grant notice under 2003 Equity Compensation Plan
[2008], incorporated herein by reference to Exhibit 10.5(t) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended March 31,
2008.
|
|
|
*10.5(o)
|
Form of
Executive Restricted Stock Notice of Grant [2009], incorporated herein by
reference to Exhibit 10.5(o) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2009.
|
48
|
|
*10.5(p)
|
Form of
Executive Special Restricted Stock Notice of Grant [2009], incorporated
herein by reference to Exhibit 10.5(p) to the Corporations Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009.
|
|
|
*10.5(q)
|
Form of
Bonus Restricted Stock Notice of Grant (associated with bonuses under the
Capital Markets Incentive Compensation Plan) [2009], incorporated herein by
reference to Exhibit 10.5(q) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2009.
|
|
|
*Management
Cash Incentive Plan Documents
|
|
|
*10.6(a)
|
2002
Management Incentive Plan, as restated for amendments through July 14, 2008,
incorporated herein by reference to Exhibit 10.6(a) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
|
|
|
*10.6(b1)
|
Capital
Markets Incentive Compensation Plan, incorporated herein by reference to
Exhibit 10.6(c) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006. Certain information in this exhibit has
been omitted pursuant to a request for confidential treatment. The omitted
information has been submitted separately to the Securities and Exchange
Commission. In accordance with the Corporations bylaws, the Corporations
Board Compensation Committees charter, and action of that Committee on July
18, 2006, the annual incentive bonus to the head of the Capital Markets unit
is subject to final review and approval by the Chief Executive Officer and
the Compensation Committee.
|
|
|
*10.6(b2)
|
Amendment to
Capital Markets Incentive Compensation Plan, incorporated herein by reference
to Exhibit 10.6(c2) to the Corporations Quarterly Report on Form 10-Q for
the quarter ended September 30, 2007.
|
|
|
*10.6(c)
|
Firstpower
Annual Bonus Plan, incorporated herein by reference to Exhibit 10.1 to the
Corporations Current Report on Form 8-K filed August 21, 2008.
|
|
|
Other
Material Contract Exhibits relating to Employment, Retirement, Severance, or
Separation
|
|
|
*10.7(a1)
|
February
2007 form of change-in-control severance agreement between the Corporation
and its executive officers, incorporated herein by reference to Exhibit 10.7(a2)
to the Corporations Current Report on Form 8-K dated February 20, 2007.
|
|
|
*10.7(a2)
|
Form of
Amendment to February 2007 form of change-in-control severance agreement
between the Corporation and its executive officers, incorporated herein by
reference to Exhibit 10.7(a4) to the Corporations Quarterly Report on Form
10-Q for the quarter ended September 30, 2007.
|
|
|
*10.7(b)
|
October 2007
form of change-in-control severance agreement between the Corporation and its
executive officers, incorporated herein by reference to Exhibit 10.7(a5) to
the Corporations Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007.
|
|
|
*10.7(c)
|
Form of
Change in Control Severance Agreement offered to executive officers on or
after November 14, 2008, incorporated herein by reference to Exhibit 10.2 to
the Corporations Current Report on Form 8-K filed November 24, 2008.
|
49
|
|
*10.7(d1)
|
Form of
Pension Restoration Plan (amended and restated as of January 1, 2008),
incorporated herein by reference to Exhibit 10.7(e) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
|
|
*10.7(d2)+
|
Form of
Amendment to Pension Restoration Plan.
|
|
|
*10.7(e)
|
Conformed
copy of offer letter concerning employment of D. Bryan Jordan, incorporated
by reference to Exhibit 10.7(m) to the Corporations Current Report on Form
8-K dated April 13, 2007.
|
|
|
*10.7(f)
|
Conformed
copy of offer letter concerning employment of William C. Losch, III
(principal financial officer), incorporated herein by reference to Exhibit
10.1 to the Corporations Current Report on Form 8-K filed November 24, 2008.
|
|
|
*10.7(g)
|
Conformed
copy of Retention Agreement with Frank J. Gusmus Jr. dated January 8, 2009,
incorporated herein by reference to Exhibit 10.7(l) to the Corporations
Annual Report on Form 10-K for the year ended December 31, 2008
|
|
|
Other
Material Contract Exhibits related to Management or Directors
|
|
|
*10.8(a)
|
Survivor
Benefits Plan, as amended and restated July 18, 2006, incorporated herein by
reference to Exhibit 10.8 to the Corporations Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006.
|
|
|
*10.8(b)
|
Other
Compensation and Benefit Arrangements for Non-employee Directors,
incorporated herein by reference to Exhibit 10.8(b) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
|
|
|
*10.8(c)
|
Long-Term
Disability Program, incorporated herein by reference to Exhibit 10(v) to the
Corporations 2003 Annual Report on Form 10-K.
|
|
|
*10.8(d1)
|
2004 Form of
Indemnity Agreement between the Corporation and its directors and executive
officers, incorporated herein by reference to Exhibit 10.13 to the
Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.8(d2)
|
Form of
amendment to 2004 form of Indemnity Agreement with directors and executive
officers, incorporated herein by reference to Exhibit 10.4 to the
Corporations Current Report on Form 8-K filed April 28, 2008.
|
|
|
*10.8(e)
|
Form of
Indemnity Agreement with directors and executive officers (April 2008
revision), incorporated herein by reference to Exhibit 10.5 to the
Corporations Current Report on Form 8-K filed April 28, 2008.
|
|
|
*10.8(f)+
|
Description
of Certain Benefits Available to Executive Officers.
|
|
|
*10.8(g)
|
Description
of 2010 Salaries for Senior Executive Officers, incorporated herein by
reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K
filed January 22, 2010.
|
|
|
*10.8(h)+
|
Salary Stock
Unit Program.
|
50
|
|
*10.8(i)
|
Form of
letter agreement with executive officers related to compensation, in
conformity with the Troubled Asset Relief Program, incorporated herein by
reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K
filed November 17, 2008.
|
|
|
*10.8(j)
|
Form of
waiver required of initial senior executive officers in connection with sale
of preferred stock under the Troubled Asset Relief Program, incorporated
herein by reference to Exhibit 10.2 to the Corporations Current Report on
Form 8-K filed November 17, 2008.
|
|
|
Other
Material Contract Exhibits
|
|
|
10.9
|
Conformed
copy of Asset Purchase Agreement dated June 3, 2008 related to the sale of
certain mortgage business operations and assets, incorporated herein by
reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K/A
filed June 4, 2008.
|
|
|
10.10
|
Conformed
copy of Mortgage Loan Subservicing Agreement dated June 3, 2008 related to
the subservicing of certain mortgage loans, incorporated herein by reference
to Exhibit 10.2 to the Corporations Current Report on Form 8-K/A filed June
4, 2008.
|
|
|
10.11
|
Conformed
copy of Servicing Rights Purchase and Sale Agreement dated June 3, 2008
related to the sale of certain mortgage servicing rights assets, incorporated
herein by reference to Exhibit 10.3 to the Corporations Current Report on
Form 8-K/A filed June 4, 2008.
|
|
|
10.12
|
Letter
agreement dated November 14, 2008 with the U.S. Department of the Treasury,
including Securities Purchase Agreement Standard Terms, incorporated herein
by reference to Exhibit 10.3 to the Corporations Current Report on Form 8-K
filed November 17, 2008.
|
|
|
13+
|
Pages 2
through 162 of the First Horizon National Corporation 2009 Annual Report to
Shareholders, a copy of which is furnished for the information of the
Securities and Exchange Commission. Portions of the Annual Report not
incorporated herein by reference are deemed not to be filed with
the Commission.
|
|
|
14
|
Code of
Ethics for Senior Financial Officers, incorporated herein by reference to
Exhibit 14 to the Corporations Annual Report on Form 10-K for the year ended
December 31, 2008.
|
|
|
21+
|
Subsidiaries
of the Corporation.
|
|
|
23+
|
Accountants
Consents.
|
|
|
24+
|
Power of
Attorney.
|
|
|
31(a)+
|
Rule
13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley
Act of
|
|
2002)
|
|
|
31(b)+
|
Rule
13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley
Act of
|
|
2002)
|
|
|
32(a)+
|
18 USC 1350
Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)
|
|
|
32(b)+
|
18 USC 1350
Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)
|
51
|
|
99.1+
|
Principal
Executive Officers Certificate (pursuant to 31 CFR 30.15)
|
|
|
99.2+
|
Principal
Financial Officers Certificate (pursuant to 31 CFR 30.15)
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
FIRST
HORIZON NATIONAL CORPORATION
|
|
|
|
Date:
February 26, 2010
|
By:
|
/s/ William C. Losch III
|
|
|
|
|
|
William C.
Losch III, Executive Vice
|
|
|
President
and Chief Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
D. Bryan
Jordan *
|
|
President,
Chief Executive Officer,
|
|
February 26, 2010
|
|
|
and Director
(principal executive officer)
|
|
|
D. Bryan
Jordan
|
|
|
|
|
|
|
|
|
|
William C.
Losch III*
|
|
Executive
Vice President and Chief
|
|
February 26, 2010
|
|
|
Financial
Officer (principal
|
|
|
William C.
Losch III
|
|
financial
officer)
|
|
|
|
|
|
|
|
James F.
Keen*
|
|
Executive
Vice President and
|
|
February 26, 2010
|
|
|
Chief
Accounting Officer (principal
|
|
|
James F.
Keen
|
|
accounting
officer)
|
|
|
|
|
|
|
|
Michael D.
Rose*
|
|
Chairman of
the Board and Director
|
|
February 26, 2010
|
|
|
|
|
|
Michael D.
Rose
|
|
|
|
|
|
|
|
|
|
Robert B.
Carter*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Robert B.
Carter
|
|
|
|
|
|
|
|
|
|
Simon F.
Cooper*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Simon F.
Cooper
|
|
|
|
|
|
|
|
|
|
Mark A.
Emkes*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Mark A.
Emkes
|
|
|
|
|
|
|
|
|
|
James A.
Haslam, III*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
James A.
Haslam, III
|
|
|
|
|
|
|
|
|
|
R. Brad
Martin*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
R. Brad
Martin
|
|
|
|
|
52
|
|
|
|
|
Vicki R.
Palmer *
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Vicki R.
Palmer
|
|
|
|
|
|
|
|
|
|
Colin V.
Reed*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Colin V.
Reed
|
|
|
|
|
|
|
|
|
|
William B.
Sansom*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
William B.
Sansom
|
|
|
|
|
|
|
|
|
|
Luke Yancy
III*
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
Luke Yancy
III
|
|
|
|
|
|
|
|
|
|
*By:
|
/s/ Clyde A. Billings, Jr.
|
February 26, 2010
|
|
|
|
|
|
|
Clyde
A. Billings, Jr.
|
|
|
|
As
Attorney-in-Fact
|
|
53
EXHIBIT INDEX
|
|
|
Exhibits
marked with an * represent a management contract or compensatory plan or
arrangement required to be identified and filed as an exhibit.
|
|
|
|
Exhibits
marked with a + are filed herewith.
|
|
|
|
The phrase
2009 named executive officers refers to those executive officers whose 2009
compensation is described in detail in the Corporations 2010 Proxy
Statement.
|
|
|
3.1
|
Restated
Charter of the Corporation, incorporated herein by reference to Exhibit 3.1
to the Corporations Current Report on Form 8-K filed April 24, 2009.
|
|
|
3.2
|
Bylaws of
First Horizon National Corporation, as amended and restated January 19, 2010,
incorporated herein by reference to Exhibit 3.2 to the Corporations Current
Report on Form 8-K filed January 22, 2010.
|
|
|
3.3
|
Warrant to
Purchase Common Stock dated November 14, 2008 issued in connection with sale
of preferred stock under the Troubled Asset Relief Program, incorporated
herein by reference to Exhibit 3.2 to the Corporations Current Report on
Form 8-K filed November 17, 2008.
|
|
|
4.1
|
The
Corporation and certain of its consolidated subsidiaries have outstanding
certain long-term debt. See Note 10 in the Corporations 2009 Annual Report
to Shareholders. At December 31, 2009, none of such debt exceeded 10% of the
total assets of the Corporation and its consolidated subsidiaries. Thus,
copies of constituent instruments defining the rights of holders of such debt
are not required to be included as exhibits. The Corporation agrees to
furnish copies of such instruments to the Securities and Exchange Commission
upon request.
|
|
|
4.2
|
Three
principal agreements related to a note program for First Tennessee Bank
National Association (the Bank): (i) form of Distribution Agreement dated
February 18, 2005 among the registrant, the Bank, and the agents therein
named; (ii) form of Fiscal and Paying Agency Agreement dated as of February
18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and
(iii) form of Interest Calculation Agreement dated as of February 18, 2005
between the Bank and JPMorgan Chase Bank, National Association. All such
agreements are incorporated herein by reference to Exhibit 4(c) to the
Corporations Current Report on Form 8-K filed February 25, 2005.
|
|
|
*Deferral
Plans and Related Exhibits
|
|
|
*10.1(a1)
|
Directors
and Executives Deferred Compensation Plan, as amended and restated,
incorporated herein by reference to Exhibit 10(h) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual
agreement, incorporated herein by reference to Exhibit 10(h) to the
Corporations 1996 Annual report on Form 10-K.
|
|
|
*10.1(a2)+
|
Rate
Applicable to Directors and Executive Officers Under the Directors and
Executives Deferred Compensation Plan.
|
|
|
*10.1(a3)
|
Form of
Amendment to Directors and Executives Deferred Compensation Plan,
incorporated herein by reference to Exhibit 10.1(a3) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
54
|
|
*10.1(b)
|
Director
Deferral Agreements with schedule, incorporated herein by reference to
Exhibit 10(k) to the Corporations 1992 Annual Report on Form 10-K and
Exhibit 10(j) to the Corporations 1995 Annual Report on Form 10-K.
|
|
|
*10.1(c)
|
Form of
First Horizon National Corporation Deferred Compensation Plan as Amended and
Restated, incorporated herein by reference to Exhibit 10.1(c) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended September
30, 2007.
|
|
|
*10.1(d)
|
[1995]
Non-Employee Directors Deferred Compensation Stock Option Plan, as restated
for amendments through December 15, 2008, incorporated herein by reference to
Exhibit 10.1(d) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
|
|
|
*10.1(e)
|
2000 Non-Employee
Directors Deferred Compensation Stock Option Plan, as restated for
amendments through December 15, 2008, incorporated herein by reference to
Exhibit 10.1(e) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
|
|
|
*10.1(f)
|
[1991] Bank
Advisory Director Deferral Plan, as restated for amendments through December
15, 2008, incorporated herein by reference to Exhibit 10.1(f) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.1(g)
|
[1996] Bank
Director and Advisory Board Member Deferral Plan, as restated for amendments
through December 15, 2008, incorporated herein by reference to Exhibit
10.1(g) to the Corporations Quarterly Report on Form 10-Q for the quarter
ended June 30, 2009.
|
|
|
*10.1(h)
|
2002 Bank
Director and Advisory Board Member Deferral Plan, as restated for amendments
through December 15, 2008, incorporated herein by reference to Exhibit
10.1(h) to the Corporations Quarterly Report on Form 10-Q for the quarter
ended June 30, 2009.
|
|
|
*10.1(i)
|
Form of
First Horizon Deferred Compensation Plan as Amended and Restated,
incorporated herein by reference to Exhibit 10.1(i) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
|
|
*10.1(j)
|
Form of FTN
Financial Deferred Compensation Plan Amended and Restated Effective January
1, 2008, incorporated herein by reference to Exhibit 10.1(j) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended September
30, 2007.
|
|
|
*10.1(k)
|
Form of
Deferred Compensation Agreement used under the registrants 2003 Equity
Compensation Plan and First Tennessee National Corporation Non-Qualified
Deferred Compensation Plan, along with form of Salary, Commission, and Annual
Bonus Deferral Programs Overview, form of Deferred Stock Option (DSO)
Program Summary, and description of share receipt deferral feature,
incorporated herein by reference to Exhibit 10(z) to the Corporations
Current Report on Form 8-K dated January 3, 2005.
|
|
|
*10.1(l)
|
Description
of April 19, 2005 amendments to the First Horizon National Corporation
Nonqualified Deferred Compensation Plan (formerly First Tennessee National
Corporation Nonqualified Deferred Compensation Plan), incorporated herein by
reference to Exhibit 10.1(l) to the Corporations Current Report on Form 8-K
dated April 19, 2005.
|
|
|
*10.1(m)
|
Description
of changes to options granted in January 2005 to certain employees in
connection with deferrals of salary earned in 2004, incorporated herein by
reference to Exhibit 10.1(m) to the Corporations Current Report on Form 8-K
dated October 19, 2005.
|
55
|
|
*Stock-Based
Incentive Plans
|
|
|
*10.2(a)
|
1990 Stock
Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments,
incorporated herein by reference to Exhibit 10(f) to the Corporations 1992,
1996, 1997 and 2000 Annual Reports on Form 10-K.
|
|
|
*10.2(b)
|
1992
Restricted Stock Incentive Plan, as restated for amendments through December
15, 2008, incorporated herein by reference to Exhibit 10.2(b) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.2(c)
|
1995
Employee Stock Option Plan, as restated for amendments through December 15,
2008, incorporated herein by reference to Exhibit 10.2(c) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.2(d)
|
1997
Employee Stock Option Plan, as restated for amendments through December 15,
2008, incorporated herein by reference to Exhibit 10.2(d) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
|
|
|
*10.2(e)
|
2000
Employee Stock Option Plan, as restated for amendments through December 15,
2008, incorporated herein by reference to Exhibit 10.2(e) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2009.
|
|
|
*10.2(f)
|
2003 Equity
Compensation Plan, as restated for amendments through December 15, 2008,
incorporated herein by reference to Exhibit 10.2(f) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
|
|
|
*TARSAP/PARSAP
Restricted Stock Agreements and Related Documents
|
|
|
*10.3(a)
|
Form of
accelerated (performance based) Restricted Stock Agreement under the 1992
Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit
10.3(a) to the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.3(b)
|
Form of
accelerated (performance based) Restricted Stock Agreement under the 2003
Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b)
to the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.3(c)
|
Description
of performance criteria related to TARSAP/PARSAP awards granted prior to
2005, incorporated herein by reference to Exhibit 10.3(c) to the
Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.3(d)
|
Form of 2005
PARSAP Agreement (for executive officers other than the CEO), incorporated
herein by reference to Exhibit 10.3(e) to the Corporations Quarterly Report
on Form 10-Q for the quarter ended March 31, 2005.
|
|
|
*10.3(e)
|
Description
of performance criteria related to 2005 PARSAP Agreement, incorporated herein
by reference to Exhibit 10.3(f) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2005.
|
56
|
|
*Performance-Based
Incentive Award Documents
|
|
|
*10.4(a)
|
Form of
Performance Stock Units Grant Notice [2007], incorporated herein by reference
to Exhibit 10.4(f) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007.
|
|
|
*10.4(b1)
|
Form of
Performance Restricted Stock award grant notice under 2003 Equity
Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(s)
to the Corporations Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008.
|
|
|
*10.4(b2)
|
Text of
Notice Announcing Modification of Performance Goal Calculation Method Related
to 2008 Executive Awards of Performance Restricted Stock, incorporated herein
by reference to Exhibit 10.4(e2) to the Corporations Annual Report on Form
10-K for the year ended December 31, 2008.
|
|
|
*10.4(c)
|
Form of
Performance Stock Units Notice of Grant [2009], incorporated herein by
reference to Exhibit 10.4(f) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2009.
|
|
|
*Other
Stock-Based Incentive Plan Agreements and Related Documents
|
|
|
*10.5(a)
|
Form of
Restricted Stock Agreement for Non-Employee Director used under the 2003
Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa)
to the Corporations Current Report on Form 8-K dated January 18, 2005.
|
|
|
*10.5(b)
|
Form of
Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated
herein by reference to Exhibit 10.5(c) to the Corporations 2004 Annual
Report on Form 10-K.
|
|
|
*10.5(c)
|
Form of
Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating
to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to
the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.5(d)
|
Form of
Stock Option Grant Notice, incorporated herein by reference to Exhibit
10.5(e) to the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.5(e)
|
Form of
Stock Option Reload Grant Notification, incorporated herein by reference to
Exhibit 10.5(f) to the Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.5(f)
|
Form of
Stock Option Grant Notice (used for executive officers during 2005),
incorporated herein by reference to Exhibit 10.5(g) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
|
|
|
*10.5(g)
|
Form of
Restricted Stock Grant Notice (used during 2005), incorporated herein by
reference to Exhibit 10.5(h) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2005.
|
|
|
*10.5(h)
|
Form of
Management Stock Option Grant Notice (used for executive officers during
2006), incorporated herein by reference to Exhibit 10.5(j) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2006.
|
57
|
|
*10.5(i)
|
Form of
Management Restricted Stock Grant Notice (used for executive officers during
2006), incorporated herein by reference to Exhibit 10.5(k) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2006.
|
|
|
*10.5(j)
|
Sections of
Director Policy pertaining to compensation, incorporated herein by reference
to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed April
24, 2009.
|
|
|
*10.5(k)
|
First
Tennessee Stock Option Enhancement Program, incorporated herein by reference
to Exhibit 10.5(o) to the Corporations Annual Report on Form 10-K for the
year ended December 31, 2006.
|
|
|
*10.5(l)
|
Form of
Management Stock Option Grant Notice [2007], incorporated herein by reference
to Exhibit 10.5(p) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007.
|
|
|
*10.5(m)
|
Form of
stock option grant notice used for special grant to Mr. Jordan in lieu of
bonus, incorporated herein by reference to Exhibit 10.5(r) to the
Corporations Current Report on Form 8-K filed February 29, 2008.
|
|
|
*10.5(n)
|
Form of
Retention Restricted Stock award grant notice under 2003 Equity Compensation
Plan [2008], incorporated herein by reference to Exhibit 10.5(t) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.
|
|
|
*10.5(o)
|
Form of
Executive Restricted Stock Notice of Grant [2009], incorporated herein by
reference to Exhibit 10.5(o) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2009.
|
|
|
*10.5(p)
|
Form of
Executive Special Restricted Stock Notice of Grant [2009], incorporated
herein by reference to Exhibit 10.5(p) to the Corporations Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009.
|
|
|
*10.5(q)
|
Form of
Bonus Restricted Stock Notice of Grant (associated with bonuses under the
Capital Markets Incentive Compensation Plan) [2009], incorporated herein by
reference to Exhibit 10.5(q) to the Corporations Quarterly Report on Form
10-Q for the quarter ended March 31, 2009.
|
|
|
*Management
Cash Incentive Plan Documents
|
|
|
*10.6(a)
|
2002
Management Incentive Plan, as restated for amendments through July 14, 2008,
incorporated herein by reference to Exhibit 10.6(a) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
|
|
|
*10.6(b1)
|
Capital
Markets Incentive Compensation Plan, incorporated herein by reference to
Exhibit 10.6(c) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006. Certain information in this exhibit has
been omitted pursuant to a request for confidential treatment. The omitted
information has been submitted separately to the Securities and Exchange
Commission. In accordance with the Corporations bylaws, the Corporations
Board Compensation Committees charter, and action of that Committee on July
18, 2006, the annual incentive bonus to the head of the Capital Markets unit
is subject to final review and approval by the Chief Executive Officer and
the Compensation Committee.
|
58
|
|
*10.6(b2)
|
Amendment to
Capital Markets Incentive Compensation Plan, incorporated herein by reference
to Exhibit 10.6(c2) to the Corporations Quarterly Report on Form 10-Q for
the quarter ended September 30, 2007.
|
|
|
*10.6(c)
|
Firstpower
Annual Bonus Plan, incorporated herein by reference to Exhibit 10.1 to the
Corporations Current Report on Form 8-K filed August 21, 2008.
|
|
|
Other
Material Contract Exhibits relating to Employment, Retirement, Severance, or
Separation
|
|
|
*10.7(a1)
|
February
2007 form of change-in-control severance agreement between the Corporation
and its executive officers, incorporated herein by reference to Exhibit
10.7(a2) to the Corporations Current Report on Form 8-K dated February 20,
2007.
|
|
|
*10.7(a2)
|
Form of
Amendment to February 2007 form of change-in-control severance agreement
between the Corporation and its executive officers, incorporated herein by
reference to Exhibit 10.7(a4) to the Corporations Quarterly Report on Form
10-Q for the quarter ended September 30, 2007.
|
|
|
*10.7(b)
|
October 2007
form of change-in-control severance agreement between the Corporation and its
executive officers, incorporated herein by reference to Exhibit 10.7(a5) to
the Corporations Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007.
|
|
|
*10.7(c)
|
Form of
Change in Control Severance Agreement offered to executive officers on or
after November 14, 2008, incorporated herein by reference to Exhibit 10.2 to
the Corporations Current Report on Form 8-K filed November 24, 2008.
|
|
|
*10.7(d1)
|
Form of
Pension Restoration Plan (amended and restated as of January 1, 2008),
incorporated herein by reference to Exhibit 10.7(e) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
|
|
*10.7(d2)+
|
Form of
Amendment to Pension Restoration Plan.
|
|
|
*10.7(e)
|
Conformed
copy of offer letter concerning employment of D. Bryan Jordan, incorporated
by reference to Exhibit 10.7(m) to the Corporations Current Report on Form
8-K dated April 13, 2007.
|
|
|
*10.7(f)
|
Conformed
copy of offer letter concerning employment of William C. Losch, III
(principal financial officer), incorporated herein by reference to Exhibit
10.1 to the Corporations Current Report on Form 8-K filed November 24, 2008.
|
|
|
*10.7(g)
|
Conformed
copy of Retention Agreement with Frank J. Gusmus Jr. dated January 8, 2009,
incorporated herein by reference to Exhibit 10.7(l) to the Corporations
Annual Report on Form 10-K for the year ended December 31, 2008
|
|
|
Other
Material Contract Exhibits related to Management or Directors
|
|
|
*10.8(a)
|
Survivor
Benefits Plan, as amended and restated July 18, 2006, incorporated herein by
reference to Exhibit 10.8 to the Corporations Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006.
|
59
|
|
*10.8(b)
|
Other
Compensation and Benefit Arrangements for Non-employee Directors,
incorporated herein by reference to Exhibit 10.8(b) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
|
|
|
*10.8(c)
|
Long-Term
Disability Program, incorporated herein by reference to Exhibit 10(v) to the
Corporations 2003 Annual Report on Form 10-K.
|
|
|
*10.8(d1)
|
2004 Form of
Indemnity Agreement between the Corporation and its directors and executive
officers, incorporated herein by reference to Exhibit 10.13 to the
Corporations 2004 Annual Report on Form 10-K.
|
|
|
*10.8(d2)
|
Form of
amendment to 2004 form of Indemnity Agreement with directors and executive
officers, incorporated herein by reference to Exhibit 10.4 to the
Corporations Current Report on Form 8-K filed April 28, 2008.
|
|
|
*10.8(e)
|
Form of
Indemnity Agreement with directors and executive officers (April 2008
revision), incorporated herein by reference to Exhibit 10.5 to the
Corporations Current Report on Form 8-K filed April 28, 2008.
|
|
|
*10.8(f)+
|
Description
of Certain Benefits Available to Executive Officers.
|
|
|
*10.8(g)
|
Description
of 2010 Salaries for Senior Executive Officers, incorporated herein by
reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K
filed January 22, 2010.
|
|
|
*10.8(h)+
|
Salary Stock
Unit Program.
|
|
|
*10.8(i)
|
Form of
letter agreement with executive officers related to compensation, in
conformity with the Troubled Asset Relief Program, incorporated herein by
reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K
filed November 17, 2008.
|
|
|
*10.8(j)
|
Form of
waiver required of initial senior executive officers in connection with sale
of preferred stock under the Troubled Asset Relief Program, incorporated
herein by reference to Exhibit 10.2 to the Corporations Current Report on
Form 8-K filed November 17, 2008.
|
|
|
Other
Material Contract Exhibits
|
|
|
10.9
|
Conformed
copy of Asset Purchase Agreement dated June 3, 2008 related to the sale of
certain mortgage business operations and assets, incorporated herein by
reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K/A
filed June 4, 2008.
|
|
|
10.10
|
Conformed
copy of Mortgage Loan Subservicing Agreement dated June 3, 2008 related to
the subservicing of certain mortgage loans, incorporated herein by reference
to Exhibit 10.2 to the Corporations Current Report on Form 8-K/A filed June
4, 2008.
|
|
|
10.11
|
Conformed
copy of Servicing Rights Purchase and Sale Agreement dated June 3, 2008
related to the sale of certain mortgage servicing rights assets, incorporated
herein by reference to Exhibit 10.3 to the Corporations Current Report on
Form 8-K/A filed June 4, 2008.
|
60
|
|
10.12
|
Letter
agreement dated November 14, 2008 with the U.S. Department of the Treasury,
including Securities Purchase Agreement Standard Terms, incorporated herein
by reference to Exhibit 10.3 to the Corporations Current Report on Form 8-K
filed November 17, 2008.
|
|
|
13+
|
Pages 2
through 162 of the First Horizon National Corporation 2009 Annual Report to
Shareholders, a copy of which is furnished for the information of the
Securities and Exchange Commission. Portions of the Annual Report not
incorporated herein by reference are deemed not to be filed with
the Commission.
|
|
|
14
|
Code of
Ethics for Senior Financial Officers, incorporated herein by reference to
Exhibit 14 to the Corporations Annual Report on Form 10-K for the year ended
December 31, 2008.
|
|
|
21+
|
Subsidiaries
of the Corporation.
|
|
|
23+
|
Accountants
Consents.
|
|
|
24+
|
Power of
Attorney.
|
|
|
31(a)+
|
Rule
13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act
of 2002)
|
|
|
31(b)+
|
Rule
13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley
Act of 2002)
|
|
|
32(a)+
|
18 USC 1350
Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)
|
|
|
32(b)+
|
18 USC 1350
Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)
|
|
|
99.1+
|
Principal
Executive Officers Certificate (pursuant to 31 CFR 30.15)
|
|
|
99.2+
|
Principal
Financial Officers Certificate (pursuant to 31 CFR 30.15)
|
61
EX-10.1(A)(2)
2
c60287_ex10-1a2.htm
EXHIBIT 10.1(a2)
RATE APPLICABLE TO
PARTICIPATING DIRECTORS AND EXECUTIVE OFFICERS UNDER THE
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
Effective for the 2010 plan year, the Board of Directors and its
Compensation Committee has approved an applicable interest rate for the
Directors and Executives Deferred Compensation Plan of 12.25%. That rate is a
reduction from the 12.5% rate in effect for 2009, and applies prospectively to
certain participants, including all participants who presently are directors or
executive officers of the registrant. Rates generally are subject to annual
approval by the Committee, but generally remain in effect until changed. The
new interest rate, within the context of the entire Plan, has been established
at a level intended to provide both retention and long-term non-compete
incentives.
EX-10.7(D)(2)
3
c60287_ex10-7d2.htm
c60287_ex10-7.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing
Exhibit 10.7(d2)
AMENDMENT TO THE
FIRST HORIZON NATIONAL CORPORATION
PENSION RESTORATION PLAN
WHEREAS, First Horizon National Corporation (the "Company") has previously adopted the First Horizon National Corporation Pension Restoration Plan (Plan), retaining the right therein
to amend the Plan; and
WHEREAS, by action of the Board of Directors of the Company on December 11, 2009, all accrued benefits under the Plan shall freeze as of December 31, 2012; and
WHEREAS, the Board of Directors has determined that a new benefit should be provided under the Plan until 2013, based upon the inclusion or deemed inclusion in
compensation at the time of grant of the equivalent share value of any Salary Stock Units granted to a Participant under the terms and limitations of the Salary Stock Unit Program, whether or not such amount is currently includable in income for
federal tax purposes;
NOW THEREFORE, to memorialize the actions taken by the Board of Directors of the Company on December 11, 2009, the Plan is amended as follows:
1. Section 4.1(b) of the Plan is amended by adding, at the end of the existing provision, the following:
Effective as of the date of execution of this Amendment, a new benefit shall be available under the Plan equal to the additional accrual which would result under the foregoing provisions of this Section if the deemed value
of any Salary Stock Units awarded to a Participant under the terms and limitations of the Salary Stock Unit Program were included in the Participants Pay for purposes of paragraph (1) above at the time of grant of such Units, without regard to
whether such Units are includable in taxable income at the time of grant for federal income tax purposes. The deemed value of each Salary Stock Unit for this purpose shall be the closing price of one share of common stock of the Company on the date
of grant of the Unit. Any outstanding Salary Stock Units as of the date of execution of this Amendment which have not previously been taken into account as Pay for purposes of Section 4.1(b)(1) of this Plan shall be included in Pay for the calendar
month in which this Amendment is adopted, based upon the closing price of one share of common stock of the Company on the date of grant of the Unit. The value or deemed value of any Unit taken into account as Pay in accordance with this paragraph
shall not again be taken into account as Pay at any later time for purposes of this Plan, either under paragraph (1) or paragraph (2) of this subsection. A Participant may not elect a form or time of payment for any benefit accrued under this
paragraph, but instead the Participants timely prior election of a time and form of payment for Code Section 409A purposes for the Plan benefit determined without regard to this paragraph shall apply to the benefit determined under this
paragraph or, in the absence of any such timely election, the benefit determined under this paragraph shall be paid as a lump sum benefit on the first business day of the month
coinciding with or next following the six-month anniversary of the Participants Separation from Service.
2. The Plan is further amended by adding, as a new Article 9, the following:
Article 9. Cessation of Benefit Accruals
9.1 In General
Notwithstanding the provisions of Article 4 or any other provision of the Plan, each Participants accrued benefit shall be frozen as of December 31, 2012, and no Participant shall accrue an additional benefit under the Plan
based upon employment with or compensation from an Employer after that date. For purposes of applying the foregoing, in the case of a Participant who is an Employee on or after December 31, 2012, the Participants benefit shall be determined in
accordance with section 18.1 of the Pension Plan (as added by Amendment No. 3 to the Pension Plan). No additional monthly benefit may be provided under this Plan based upon any agreement entered into by a Participant and an Employer after December
31, 2012.
9.2 Continued Actuarial Adjustments
The provisions of this Article 9 shall not be interpreted to preclude adjustments to Participant benefits for the purpose of paying benefits beginning as of a date other than the Participants Normal Retirement Date or other
than in the Ten-Year Certain and Life Annuity form, nor to prevent a Participant from becoming entitled to commencement of payment before the Participants Normal Retirement Date.
9.3 Post-Freeze Vesting of Accrued Benefits
The cessation of benefit accruals under the Plan as provided in Section 9.1 shall not necessarily result in the full vesting of all accrued benefits. The age and/or Vesting Service requirements set forth in the first sentence of
Section 4.1(a) shall continue to apply notwithstanding the freeze on additional benefit accruals after December 31, 2012.
9.4 No Additional Participants
Notwithstanding the provisions of Article 3 or any other provision of the Plan, in no event shall any individual become a Participant, remain an active Participant or resume participation in the Plan as of any date after December
31, 2012.
The Company has caused this Amendment to be executed this_____ day of _____, 2010.
|
|
FIRST HORIZON NATIONAL CORPORATION |
|
|
|
|
|
ATTEST: |
|
|
|
|
|
|
|
By: |
|
|
By: |
|
|
|
|
|
|
|
|
|
Title: |
|
|
|
|
|
|
EX-10.8(F)
4
c60287_ex10-8f.htm
EXHIBIT 10.8(f)
LIST OF CERTAIN BENEFITS
AVAILABLE TO CERTAIN EXECUTIVE OFFICERS
(As in effect February 1, 2010)
The following benefits are
available to some or all executive officers (among other persons), but not to
all full-time employees of the Corporation.
|
|
|
|
1)
|
If the Board has
authorized a stock repurchase program, an executive may request the
repurchase of shares of the Corporation at the days volume-weighted average
price with no payment of any fees or commissions if the repurchase of the
shares is otherwise permissible under the authorized program.
|
|
|
|
|
2)
|
The Corporations
disability insurance program generally is available to employees. Persons
above a certain grade level, including executive officers, receive an
additional benefit. Executive officers are paid an amount each year intended
to reimburse premiums associated with the additional benefit.
|
|
|
|
|
3)
|
The Corporation makes
available or pays for tax preparation, tax consulting, estate planning, and
financial counseling services for executive officers. Current limits on this
benefit applicable to executives are: $15,000 per year for the CEO ($22,500
in any year in which a new financial counseling firm is engaged); and $5,000
per year for other executives ($7,500 in any year in which a new financial
counseling firm is engaged).
|
|
|
|
|
4)
|
On occasion spouses of
certain employees, including executive officers, are asked by the
Corporation, for business reasons, to accompany the employee on a business
trip or function. In those cases the Corporation may pay the travel,
accommodation, and other expenses of the spouse incidental to the trip or
function, some or all of which can result in taxable income for the employee.
Also, on occasion the Corporation may provide or pay for a memento, gift, or other
gratuity that the employee or spouse receives in connection with the business
trip or function.
|
|
|
|
|
5)
|
The Corporation provides a
relocation benefit to a wide range of employees, including executive
officers, under varying circumstances and subject to certain constraints. The
benefit may be in the form of an allowance or a reimbursement of actual
expenses.
|
|
|
|
|
6)
|
The
Corporation provides a cash allowance to certain employees, including
executive officers, which is intended to defray expenses associated with
goods and services purchased personally and used at least in part for
business purposes (such as cell phone service).
|
EX-10.8(H)
5
c60287_ex10-8h.htm
Exhibit 10.8(h)
Salary Stock Unit Program
(Last revised February 26, 2010)
1. |
Purpose. The purpose of the Program is to link more of each participants compensation to the companys stock performance and facilitate retention of key executives. |
2. |
Committee Actions. From time to time the Compensation Committee (CC) (a) will identify persons who are to receive a portion of salary in the form of salary stock units (SSUs), and (b) will determine the dollar amount of salary that each such person will receive in the form of SSUs, sometimes called the SSU crediting rate. The portion of salary in the form of SSUs may be in lieu of cash salary or supplemental to prior cash salary rates. The crediting of SSUs to each such person will continue while he or she is employed with FHN until the CC changes or ends the persons participation or this SSU Program, unless the CC approves an automatic sunset date for participation or this Program or unless the CC limits participation to a specified year and fails to renew participation. It is expected that the CC
will reconsider these determinations at least once each year. The CC may change or eliminate the dollar amount of salary to be paid to a participant in the form of SSUs at any time; although such action would not affect previously-credited SSUs, no participant has any right to continue to receive new SSUs at any specific dollar level or at all. In addition, the CC may accelerate settlement of SSUs globally or for any participant based on the value of FHN stock at that time, and may change the terms of SSUs or this Program at any time. |
3. |
SSU Terms and Mechanics. |
|
a. |
For each person designated to participate in the Program by CC action taken in 2009, crediting of SSUs is expected to commence on that payday relating to the first full pay period of 2010. For each person designated to participate in the Program by CC action taken after 2009, crediting of SSUs is expected to commence the second payday following CC action. In all cases commencement dates are subject to delay for administrative reasons, and the CC may direct that another date be used in a particular instance. |
|
b. |
When SSUs are credited to a participant as of a particular payday, the number of SSUs will equal the dollar amount of salary for that payday to be paid in the form of SSUs (net of any applicable withholding taxes, as provided in paragraph e below) divided by the average or closing share price of FHN stock for any day selected by the administrator which is one of the ten consecutive trading days ending with that payday. The number of credited SSUs will be calculated and rounded down (not up) as the administrator determines. The initial determinations of these matters are: the high-low average price of stock on the third business day prior to the relevant payday will be used; and, units will be carried out to the same number of decimal places as stock dividends for ordinary shareholders, except that the number of SSUs will be
rounded down. |
|
(i) |
General Rule. Each SSU entitles the participant to receive the cash value of one share of FHN stock valued at the average or closing price of FHN stock on any of the first ten trading days in July (selected by the administrator) of the second year after the calendar year of crediting. Settlement of SSUs will be made within 25 business days after that settlement valuation date. For example, SSUs credited during 2010 would be settled in July or August 2012 based on the value of FHN stock in the first half of July 2012. SSUs credited during 2011 would be settled and valued in 2013, and so on. In converting SSUs to cash values when settled, dollar amounts will be calculated and rounded down (not up) as the administrator determines. Initial determinations of these matters include: the high-low average price
of stock on the fifth trading day of July will be used to value units for payment. |
1
|
(ii) |
SEOs. The General Rule above applies to participants who, in the year SSUs are credited, are senior executive officers (SEOs) under the Troubled Asset Relief Program (TARP) rules, subject to the changes provided in this sub-section (ii). For SEOs, SSUs credited in any given year will be paid one-half in March and one-half in September of the next year. The administrator will cause the SSUs to be paid on or about the first business day of each such month, subject to ordinary administrative considerations. The valuation date for each SSU payment will be any of the ten trading days preceding the payment date selected by the administrator. Initial determinations of these matters include: the high-low average price of stock on the fifth trading day prior to March 1 and September 1 will be used to
value units for payment. |
|
d. |
SSUs will not be settled in actual shares of stock, and will have no voting rights. An SSU will not be represented by any certificate or document, but instead will be credited on the books of FHN or its administrative agent. SSUs are not associated with any plan of FHN. |
|
e. |
Taxes will be withheld in connection with a crediting or settlement event (as applicable) and remitted to government authorities as necessary or appropriate. Taxes withheld in connection with crediting may be withheld from salary paid in the form of cash or other contemporaneously paid compensation, or may reduce the number of SSUs credited, or both, as the administrator determines. Participants are not permitted to elect to be taxed on SSUs at the time of crediting. The initial determinations of these matters are: any FICA, medicare, and income taxes withheld in connection with crediting SSUs will reduce the dollar amount of salary which is to be converted into SSUs. |
|
f. |
SSUs will be adjusted for stock dividends and splits that occur after crediting and prior to settlement in order to prevent enlargement or dilution of value. In making such adjustments, SSUs will be treated in a manner similar to ordinary shares except that calculated numbers of SSUs are to be rounded down (not up) as the administrator determines. The administrator will make appropriate adjustments for SSUs credited near dividend and split record dates to account for the effects of ex-trading dates in the market prices of FHN shares, again in order to prevent enlargement or dilution of value. |
|
g. |
If cash dividends are declared on FHN shares during the time that a participant holds SSUs, a cash amount will be credited to the participant equivalent to the cash dividend that would have been paid on a like number of ordinary FHN shares, calculated and rounded down (not up) as the administrator determines. Credited cash dividend equivalent amounts will not be converted into SSUs and will not accrue interest, and will be paid to the participant at the time that the associated SSUs are paid. |
|
h. |
SSUs are not transferable. |
|
i. |
Absent other action by the CC, if FHN merges or consolidates and as a result FHN shares cease to be publicly outstanding, then outstanding SSUs will be converted into units denominated in shares of the surviving or resulting company based on the transaction value. The conversion will be accomplished, to the extent practicable, so as to prevent enlargement or dilution of value. |
|
j. |
SSUs are a special form of deferred salary and are credited in tandem with cash salary. When cash salary no longer is paid to a participant, SSUs no longer will be credited. If cash salary previously paid to a participant were subject to forfeiture or reclamation for any reason, the associated SSUs similarly would be subject to forfeiture or reclamation. However, SSU crediting rates and cash salary rates may be adjusted independently of each other; a change in a participants cash salary rate does not automatically result in any change in that persons SSU crediting rate. |
|
k. |
The timing, pricing, and other administrative determinations associated with SSU recipients who are subject to Form 4 reporting may differ from those of other program participants. Initially, no such differences have been approved by the administrator. |
2
4. |
Termination of Employment. |
|
a. |
Subject to the exceptions set forth below, credited SSUs will be forfeited unless the participant is continuously employed by FHN or a subsidiary through the payment date of the SSUs. |
|
b. |
Notwithstanding paragraph a., if a participant dies, his or her credited and unpaid SSUs will not be forfeited as a result of death, and settlement of the SSUs will be accelerated in an equitable and appropriate manner determined by the administrator. The valuation date for any such settlement will be the first trading day following the date of death. |
|
c. |
Notwithstanding paragraph a., if a participants employment with FHN terminates as a result of normal or early retirement or disability, then his or her credited and unpaid SSUs will not be forfeited as a result of that termination, and settlement of the SSUs will occur at the ordinary times set forth in this Program. For this purpose, normal retirement and early retirement have the meanings given in procedure 43 of the Equity Award Administration Procedures (revd July 20, 2009), and disability means a disability that would qualify as a total and permanent disability under the long-term disability plan then in effect at FHN, or (if different) at the FHN subsidiary employing the participant, at the onset of such total and permanent disability. |
|
d. |
Notwithstanding paragraph c., a participant who has terminated employment but retained SSUs due to retirement or disability shall forfeit all of those retained SSUs if, at any time during the period prior to the latest payment date of any SSUs credited to him or her at the time of termination, the participant engages in any competitive activity. Each of the CC and the administrator has the discretion to determine whether any particular activity is competitive with FHN or any of its subsidiaries. |
|
e. |
Enforcement of the vesting and forfeiture conditions above is subject to the U.S. Department of the Treasury compensation rules applicable to FHN under the TARP. At the time this Program is adopted, it is uncertain whether the TARP rules prohibit FHN from imposing vesting and forfeiture conditions upon SSUs credited to participants who are SEOs at the time of crediting. As long as such uncertainty exists, this Program will be interpreted to assume that the TARP rules prohibit the imposition of a vesting condition on SEO participants. However, if the TARP rules are later amended or interpreted so that the vesting condition is permitted with respect to SEOs, FHN retains the right to impose the vesting condition on SEOs to the maximum extent allowed, including retroactively to any time when uncertainty existed. |
5. |
No Elective Deferrals. Participants may not elect to defer the settlement of SSUs beyond the mandatory deferral period provided in the program above. SSUs are not eligible for elective deferral under any deferral plan or program of FHN, even if those plans or programs generally allow deferral of salary. Outstanding salary deferral elections shall not apply to SSUs. |
6. |
Treatment of SSUs as Base Salary. SSUs are, or are not, to be treated as base salary under the plans and programs listed below. For any plan or program not listed, SSUs shall not be treated as base salary unless the administrator determines otherwise; any such determinations must be reported to the CC at or before its next quarterly meeting. |
SSUs, measured at the crediting rate and date rather than the ultimate payment amount and date, are treated as base salary for the following (subject to the limitation in the next sentence):
|
a. |
Retirement and retirement restoration plans, including pension and savings plans. |
|
b. |
All life and disability benefit and insurance programs. |
|
c. |
Other programs treated as benefit programs by FHNs Human Resources division. This provision does not include severance programs. |
3
For each such case, the amount of SSUs treated as base salary shall not exceed $200,000 per person per calendar year.
SSUs are not treated as base salary for the following:
|
d. |
Change in control severance agreements and any change in control severance plan or program that may apply to a holder of SSUs. |
|
e. |
Any other present or future severance plan, program, or agreement. |
7. |
Administration. The EVP Human Resources (Chief Human Resources Officer) is the program administrator, with authority to oversee all administrative matters related to the SSU program. All administrative actions must further the purposes of the program and be compatible with legal requirements and appropriate tax and accounting outcomes. The administrator may deviate from or modify the following program provisions under this authority: any provision governing a settlement date or a date as of which FHN stock is valued to convert cash amounts into SSUs, or SSUs into cash, provided that such a provision may be changed only out of demonstrable administrative necessity and must be reported at the next quarterly CC meeting; for any calculation, any provision governing a number of decimal places or a
rounding convention; and, any provision to the extent necessary to comply with legal requirements, to avoid a legal penalty or forfeiture, or to obtain or preserve appropriate tax and accounting outcomes, provided that in no case may actual shares of stock be issued in settlement of SSUs. |
4
EX-13
6
c60287_ex13.htm
3B2 EDGAR HTML -- c60372_10k.htm
FINANCIAL INFORMATION AND DISCUSSION
TABLE OF CONTENTS
FIRST HORIZON NATIONAL CORPORATION
SELECTED FINANCIAL AND OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions except per share data) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Income/(loss) from continuing operations |
|
|
$ |
|
(245.6 |
) |
|
|
|
$ |
|
(174.4 |
) |
|
|
|
$ |
|
(153.8 |
) |
|
|
|
$ |
|
267.8 |
|
|
|
$ |
|
416.9 |
|
|
|
$ |
|
425.0 |
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(12.8 |
) |
|
|
|
|
(3.5 |
) |
|
|
|
|
2.5 |
|
|
|
|
212.0 |
|
|
|
|
21.7 |
|
|
|
|
20.7 |
|
Income/(loss) before cumulative effect of changes in accounting principle |
|
|
|
(258.4 |
) |
|
|
|
|
(178.0 |
) |
|
|
|
|
(151.3 |
) |
|
|
|
|
479.8 |
|
|
|
|
438.6 |
|
|
|
|
445.7 |
|
Cumulative effect of changes in accounting principle, net of tax |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
1.3 |
|
|
|
|
(3.1 |
) |
|
|
|
|
- |
|
Net income/(loss) |
|
|
|
(258.4 |
) |
|
|
|
|
(178.0 |
) |
|
|
|
|
(151.3 |
) |
|
|
|
|
481.1 |
|
|
|
|
435.5 |
|
|
|
|
445.7 |
|
Income/(loss) available to common shareholders |
|
|
|
(329.4 |
) |
|
|
|
|
(199.4 |
) |
|
|
|
|
(170.1 |
) |
|
|
|
|
462.7 |
|
|
|
|
424.7 |
|
|
|
|
445.7 |
|
|
Common Stock Data (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share from continuing operations |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
|
|
$ |
|
1.78 |
|
|
|
$ |
|
2.87 |
|
|
|
$ |
|
3.02 |
|
Earnings/(loss) per common share |
|
|
|
(1.49 |
) |
|
|
|
|
(1.03 |
) |
|
|
|
|
(1.20 |
) |
|
|
|
|
3.30 |
|
|
|
|
3.00 |
|
|
|
|
3.17 |
|
Diluted earnings/(loss) per common share from continuing operations |
|
|
|
(1.44 |
) |
|
|
|
|
(1.01 |
) |
|
|
|
|
(1.22 |
) |
|
|
|
|
1.73 |
|
|
|
|
2.77 |
|
|
|
|
2.93 |
|
Diluted earnings/(loss) per common share |
|
|
|
(1.49 |
) |
|
|
|
|
(1.03 |
) |
|
|
|
|
(1.20 |
) |
|
|
|
|
3.21 |
|
|
|
|
2.90 |
|
|
|
|
3.07 |
|
Cash dividends declared per common share |
|
|
|
- |
|
|
|
|
0.35 |
|
|
|
|
1.60 |
|
|
|
|
1.60 |
|
|
|
|
1.54 |
|
|
|
|
1.44 |
|
Year-end book value per common share |
|
|
|
9.95 |
|
|
|
|
11.31 |
|
|
|
|
14.97 |
|
|
|
|
17.47 |
|
|
|
|
16.48 |
|
|
|
|
14.64 |
|
Closing price of common stock per share: |
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
14.55 |
|
|
|
|
19.59 |
|
|
|
|
39.99 |
|
|
|
|
37.89 |
|
|
|
|
39.47 |
|
|
|
|
42.54 |
|
Low |
|
|
|
6.94 |
|
|
|
|
4.47 |
|
|
|
|
15.95 |
|
|
|
|
32.96 |
|
|
|
|
31.13 |
|
|
|
|
36.85 |
|
Year-end |
|
|
|
13.40 |
|
|
|
|
9.83 |
|
|
|
|
16.08 |
|
|
|
|
37.02 |
|
|
|
|
34.06 |
|
|
|
|
38.20 |
|
Cash dividends per common share/year-end closing price |
|
|
|
N/A |
|
|
|
|
3.6 |
% |
|
|
|
|
10.0 |
% |
|
|
|
|
4.3 |
% |
|
|
|
|
4.5 |
% |
|
|
|
|
3.8 |
% |
|
Cash dividends per common share/diluted earnings per common share |
|
|
|
N/A |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
49.9 |
% |
|
|
|
|
53.1 |
% |
|
|
|
|
47.0 |
% |
|
Compound stock dividend rate declared per share |
|
|
|
7.5320 |
% |
|
|
|
|
4.9547 |
% |
|
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
|
N/A |
|
Price/earnings ratio |
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
11.6 |
x |
|
|
|
|
11.7 |
x |
|
|
|
|
12.4 |
x |
|
Market capitalization |
|
|
$ |
|
2,974.5 |
|
|
|
$ |
|
2,169.8 |
|
|
|
$ |
|
2,293.5 |
|
|
|
$ |
|
5,216.9 |
|
|
|
$ |
|
4,852.0 |
|
|
|
$ |
|
5,325.5 |
|
Average shares (thousands) |
|
|
|
220,412 |
|
|
|
|
194,322 |
|
|
|
|
142,027 |
|
|
|
|
140,458 |
|
|
|
|
141,611 |
|
|
|
|
140,771 |
|
Average diluted shares (thousands) |
|
|
|
220,412 |
|
|
|
|
194,322 |
|
|
|
|
142,027 |
|
|
|
|
144,407 |
|
|
|
|
146,341 |
|
|
|
|
144,973 |
|
Period-end shares outstanding (thousands) |
|
|
|
221,980 |
|
|
|
|
220,745 |
|
|
|
|
142,617 |
|
|
|
|
140,924 |
|
|
|
|
142,454 |
|
|
|
|
139,418 |
|
Volume of shares traded (thousands) |
|
|
|
1,181,011 |
|
|
|
|
1,558,897 |
|
|
|
|
548,746 |
|
|
|
|
208,662 |
|
|
|
|
192,153 |
|
|
|
|
205,131 |
|
|
Selected Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
$ |
|
28,147.8 |
|
|
|
$ |
|
34,422.7 |
|
|
|
$ |
|
38,175.4 |
|
|
|
$ |
|
38,764.6 |
|
|
|
$ |
|
36,560.4 |
|
|
|
$ |
|
27,305.8 |
|
Total assets divestiture |
|
|
|
- |
|
|
|
|
182.3 |
|
|
|
|
123.1 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Total loans, net of unearned income |
|
|
|
19,579.3 |
|
|
|
|
21,660.7 |
|
|
|
|
22,106.7 |
|
|
|
|
21,504.2 |
|
|
|
|
18,334.7 |
|
|
|
|
15,440.5 |
|
Total loans held for sale divestiture |
|
|
|
- |
|
|
|
|
110.4 |
|
|
|
|
117.8 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Investment securities |
|
|
|
2,852.1 |
|
|
|
|
2,964.0 |
|
|
|
|
3,380.2 |
|
|
|
|
3,481.5 |
|
|
|
|
2,906.2 |
|
|
|
|
2,471.1 |
|
Earning assets |
|
|
|
25,373.9 |
|
|
|
|
30,426.2 |
|
|
|
|
33,405.4 |
|
|
|
|
34,042.3 |
|
|
|
|
31,976.2 |
|
|
|
|
23,740.3 |
|
Deposits |
|
|
|
14,556.2 |
|
|
|
|
14,920.9 |
|
|
|
|
20,313.8 |
|
|
|
|
22,751.7 |
|
|
|
|
23,015.8 |
|
|
|
|
17,635.5 |
|
Total deposits divestiture |
|
|
|
- |
|
|
|
|
48.8 |
|
|
|
|
95.3 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Long-term debt |
|
|
|
3,506.9 |
|
|
|
|
6,108.6 |
|
|
|
|
6,567.7 |
|
|
|
|
5,062.4 |
|
|
|
|
2,560.1 |
|
|
|
|
2,248.0 |
|
Common equity |
|
|
|
2,365.6 |
|
|
|
|
2,534.1 |
|
|
|
|
2,423.5 |
|
|
|
|
2,423.0 |
|
|
|
|
2,177.0 |
|
|
|
|
1,905.5 |
|
Total equity |
|
|
|
3,452.0 |
|
|
|
|
2,930.7 |
|
|
|
|
2,718.7 |
|
|
|
|
2,718.2 |
|
|
|
|
2,406.9 |
|
|
|
|
1,906.0 |
|
|
Selected Period-End Balances |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
$ |
|
26,068.7 |
|
|
|
$ |
|
31,022.0 |
|
|
|
$ |
|
37,015.5 |
|
|
|
$ |
|
37,918.3 |
|
|
|
$ |
|
36,579.1 |
|
|
|
$ |
|
29,771.7 |
|
Total assets divestiture |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
305.7 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Total loans, net of unearned income |
|
|
|
18,123.9 |
|
|
|
|
21,278.2 |
|
|
|
|
22,103.5 |
|
|
|
|
22,104.9 |
|
|
|
|
20,612.0 |
|
|
|
|
16,441.9 |
|
Total loans held for sale divestiture |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
289.9 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Investment securities |
|
|
|
2,694.5 |
|
|
|
|
3,125.2 |
|
|
|
|
3,032.8 |
|
|
|
|
3,923.5 |
|
|
|
|
2,941.2 |
|
|
|
|
2,704.6 |
|
Earning assets |
|
|
|
22,962.9 |
|
|
|
|
26,895.9 |
|
|
|
|
31,785.6 |
|
|
|
|
32,353.3 |
|
|
|
|
31,606.7 |
|
|
|
|
25,975.9 |
|
Deposits |
|
|
|
14,867.2 |
|
|
|
|
14,241.8 |
|
|
|
|
17,032.3 |
|
|
|
|
20,213.2 |
|
|
|
|
23,317.6 |
|
|
|
|
19,757.0 |
|
Total deposits divestiture |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
230.4 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Long-term debt |
|
|
|
2,891.1 |
|
|
|
|
4,767.7 |
|
|
|
|
6,828.4 |
|
|
|
|
5,836.4 |
|
|
|
|
3,437.6 |
|
|
|
|
2,616.4 |
|
Common equity |
|
|
|
2,208.6 |
|
|
|
|
2,496.8 |
|
|
|
|
2,135.6 |
|
|
|
|
2,462.4 |
|
|
|
|
2,347.5 |
|
|
|
|
2,041.0 |
|
Total equity |
|
|
|
3,302.5 |
|
|
|
|
3,574.6 |
|
|
|
|
2,430.9 |
|
|
|
|
2,757.7 |
|
|
|
|
2,642.8 |
|
|
|
|
2,041.4 |
|
|
Selected Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common equity |
|
|
|
(13.93 |
)% |
|
|
|
|
(7.87 |
)% |
|
|
|
|
(7.02 |
)% |
|
|
|
|
19.10 |
% |
|
|
|
|
19.51 |
% |
|
|
|
|
23.39 |
% |
|
Return on average assets |
|
|
|
(0.92 |
) |
|
|
|
|
(0.52 |
) |
|
|
|
|
(0.40 |
) |
|
|
|
|
1.24 |
|
|
|
|
1.19 |
|
|
|
|
1.63 |
|
Net interest margin |
|
|
|
3.06 |
|
|
|
|
2.95 |
|
|
|
|
2.82 |
|
|
|
|
2.93 |
|
|
|
|
3.08 |
|
|
|
|
3.61 |
|
Allowance for loan losses to loans |
|
|
|
4.95 |
|
|
|
|
3.99 |
|
|
|
|
1.55 |
|
|
|
|
0.98 |
|
|
|
|
0.92 |
|
|
|
|
0.96 |
|
Net charge-offs to average loans |
|
|
|
4.25 |
|
|
|
|
2.64 |
|
|
|
|
0.60 |
|
|
|
|
0.26 |
|
|
|
|
0.20 |
|
|
|
|
0.27 |
|
Total period-end equity to period-end assets |
|
|
|
12.67 |
|
|
|
|
11.52 |
|
|
|
|
6.57 |
|
|
|
|
7.27 |
|
|
|
|
7.22 |
|
|
|
|
6.86 |
|
Tangible common equity to tangible assets (b) |
|
|
|
7.75 |
|
|
|
|
7.34 |
|
|
|
|
5.13 |
|
|
|
|
5.65 |
|
|
|
|
5.49 |
|
|
|
|
6.16 |
|
|
NM - not meaningful
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Shares restated for stock dividends distributed through January 1, 2010.
(b) Represents a non-GAAP measure. Refer to Table 26 for the non-GAAP to GAAP reconciliation.
2
FIRST HORIZON NATIONAL CORPORATION
FIRST HORIZON NATIONAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL INFORMATION
First Horizon National Corporation (FHN) began as a small community bank chartered in 1864 and is now one of the 30 largest bank holding companies in the United States in terms of asset size.
Approximately 5,700 FHN employees provide financial services through more than 180 bank locations in and around Tennessee and 19 capital markets offices in the U.S. and abroad.
The corporations two major brands First Tennessee and FTN Financial provide customers with a broad range of products and services. First Tennessee has the leading combined deposit market share in the 17 Tennessee counties where it does business and one of the highest customer retention rates of any
bank in the country. FTN Financial (FTNF) is an industry leader in fixed income sales, trading, and strategies for institutional clients in the U.S. and abroad.
AARP and Working Mother magazine have recognized FHN as one of the nations best employers.
FHN is composed of the following operating segments:
|
|
|
|
|
Regional Banking offers financial products and services, including traditional lending and deposit-taking, to retail and commercial customers in Tennessee and surrounding markets. Additionally, Regional Banking provides investments, insurance, financial planning, trust services and asset management, credit
card, cash management, and check clearing services. |
|
|
|
|
|
Capital Markets provides a broad spectrum of financial services for the investment and banking communities through the integration of traditional capital markets securities activities, loan sales, portfolio advisory services, derivative sales, and correspondent banking services. |
|
|
|
|
|
Mortgage Banking consists of the origination of mortgage loans in and around the regional banking footprint and legacy servicing. Prior to the August 31, 2008, sale of its servicing platform and origination offices outside Tennessee, this division provided mortgage loans and servicing to consumers and operated
in approximately 40 states. |
|
|
|
|
|
National Specialty Lending consists of legacy traditional consumer and construction lending activities outside the regional banking footprint. In January 2008, FHN announced the discontinuation of national home builder and commercial real estate lending. |
|
|
|
|
|
Corporate consists of unallocated corporate expenses including net charges related to restructuring, repositioning, and efficiency initiatives, gains and losses on repurchases of debt, expense on subordinated debt issuances and preferred stock, bank-owned life insurance, unallocated interest income associated
with excess equity, net impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management, low income housing investment activities, and venture capital.
|
For the purpose of this managements discussion and analysis (MD&A), earning assets have been expressed as averages, unless otherwise noted, and loans have been disclosed net of unearned income. The following financial discussion should be read with the accompanying audited Consolidated Financial
Statements and notes. Certain capital-related non-GAAP measures are included in the narratives and tables in MD&A. FHNs management believes such measures are relevant to understanding the capital position and results of the company. The non-GAAP items presented in MD&A are tangible common equity to
tangible assets, tangible book value per common share, tier 1 common to risk weighted assets, and adjusted tangible common equity to risk weighted assets. These measures are reported to FHNs management and board of directors through various internal reports. Additionally, disclosure of the non-GAAP capital
ratios provide a meaningful base for comparability to other financial institutions as these ratios have become important measures of the capital strength of banks as demonstrated by their inclusion in the stress tests administered by the United States Treasury Department (UST) under the Capital
3
FIRST HORIZON NATIONAL CORPORATION
Assistance Program. Non-GAAP measures are not formally defined by GAAP or codified in the federal banking regulations, and other entities may use calculation methods that differ from those used by FHN. Tier 1 capital is a regulatory term and is generally defined as the sum of core capital (including common
equity and instruments that can not be redeemed at the option of the holder) adjusted for certain items under risk-based capital regulations. Also a regulatory term, risk-weighted assets includes total assets adjusted for credit risk and is used to determine capital ratios. Refer to Table 26 for a reconciliation of non-
GAAP to GAAP measures and presentation of the most comparable GAAP items.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements with respect to FHNs beliefs, plans, goals, expectations, and estimates. Forward-looking statements are statements that are not a representation of historical information but rather are related to future operations, strategies, financial results, or other developments. The
words believe, expect, anticipate, intend, estimate, should, is likely, will, going forward, and other expressions that indicate future events and trends identify forward-looking statements. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to
significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond a companys control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and
contingencies include, among other important factors, general and local economic and business conditions; recession or other economic downturns; expectations of and actual timing and amount of interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial
services institution); market and monetary fluctuations; inflation or deflation; customer and investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity;
recent and future legislative and regulatory developments; natural disasters; effectiveness of FHNs hedging practices; technology; demand for FHNs product offerings; new products and services in the industries in which FHN operates; and critical accounting estimates. Other factors are those inherent in originating,
selling, and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of
the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), Financial Industry Regulatory Authority (FINRA), U.S. Department of the Treasury, and other regulators and agencies; regulatory and judicial
proceedings and changes in laws and regulations applicable to FHN; and FHNs success in executing its business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ. FHN assumes no obligation to update any forward-looking statements that are made from
time to time. Actual results could differ because of several factors, including those presented in this Forward-Looking Statements section, in other sections of this MD&A, in Item 1A of FHNs 2009 annual report on Form 10-K, and in other parts of that annual report.
FINANCIAL SUMMARY
For 2009 FHN reported a net loss available to common shareholders of $329.4 million, or $1.49 diluted loss per share compared to a loss of $199.4 million, or $1.03 diluted loss per share in 2008. The after-tax results of FTN Financials institutional equity research business, FTN Equity Capital Markets (FTN
ECM), including a $14.3 million pre-tax goodwill impairment, are reflected in the discontinued operations, net of tax line on the Consolidated Statements of Income for all periods presented.
Reported earnings are directly and significantly affected by a number of factors in both 2009 and 2008. Generally, overall performance was a result of a challenging operating environment and, when compared with 2008, due to the broad effects from the 2008 divestiture of certain mortgage banking operations.
Results for 2009 include a contraction of fee income, higher losses from foreclosure and repurchase obligations, and elevated foreclosure losses that overshadowed reduced loan loss provisioning and an overall decline in expenses when compared with 2008.
4
FIRST HORIZON NATIONAL CORPORATION
Among other factors, economic conditions in 2009 and 2008 played a significant role in FHNs results of operations. Although perhaps less volatile than 2008, the economic environment did not significantly improve during 2009. The downward spiral of the credit markets that occurred in 2008 began to slow as
actions taken by the U.S. Treasury and the Federal Reserve promoted the extension of credit in the marketplace. Although the tightened credit markets relaxed in 2009, economic conditions remained poor as unemployment continued to rise, the housing market was still anemic, and economic indicators have not
foreshadowed a quick recovery. The manifestation of the current economic downturn in FHNs results can be seen in several areas, although the effects were not entirely negative. Asset quality was severely impacted as the extended recession took a toll on commercial and retail borrowers alike resulting in elevated
provision, net charge-offs, and allowance for loan losses. However, FHN has made significant headway in reducing exposure to national construction loans as balances have significantly declined since 2008. While asset quality indicators are still stressed, FHN experienced stabilization during the second half of 2009
and improvement appears to be on the horizon as provision expense and nonperforming assets decreased from 2008.
In addition to the negative effects of asset quality in FHNs loan portfolio, increased repurchase and make-whole claims from agency and private purchasers of loans originated and subsequently sold by FHN hampered earnings as FHN recorded $148.5 million in charges for its obligations related to these assets.
FDIC premium expense increased as the FDIC levied a special assessment to replenish the deposit insurance fund. Results in 2009 include $46.3 million for FDIC deposit insurance coverage. The depressed housing market is still affecting collateral values which have resulted in higher loss severities on dispositions
and an increase in negative valuation adjustments on already historically lofty foreclosed assets numbers.
However, the poor economic landscape provided opportunity to Capital Markets which thrived during 2009. Market instability and illiquidity boosted Capital Markets fixed income sales revenues resulting in a record year. Additionally, during this downturn, the Federal Reserve has maintained the target federal funds
rate at a historical low which has favorably affected net interest margin and funding costs as interest rates on deposits and shorter-term borrowings are significantly lower than in previous years.
Beginning in 2007 and continuing through 2009, FHN conducted an ongoing, company-wide review of business practices with the goal of improving overall profitability and productivity. In 2009, FHN executed key strategic initiatives as we continued to refocus on core businesses and to reduce non-strategic
activities. This resulted in a decision to dispose of FTN ECM, and the sales and closures of FHNs insurance business in Atlanta, and FHNs lockbox service in Louisville, First Express Remittance Processing (FERP). Additionally, FHN terminated a sizeable consulting contract and continues to incur severance
costs related to the wind-down of the national loan portfolios. These activities resulted in losses on divestiture, goodwill impairments, asset write-offs, and other losses. In 2008, FHN completed the divestiture of the First Horizon Bank branches and also continued the reduction of mortgage banking operations
through the sale of its national origination offices, the servicing platform, and servicing rights to $19.1 billion of unpaid principal balance. Additionally, FHN reduced balance sheet risk by executing MSR bulk sales in both 2008 and 2009. While management remained active in pursuing such initiatives during 2009,
net pre-tax charges related to restructuring, repositioning, and efficiency initiatives decreased to $51.9 million compared with $91.4 million in 2008.
Visas ongoing litigation affected results in both 2009 and 2008 as $7.0 million of the contingent liability was reversed in 2009 compared with $30.0 million in 2008. Additionally, FHN recognized gains on the repurchase of debt in both periods with $16.4 million in 2009 compared with $33.8 million in 2008.
FHN progressed on balance sheet contraction and reducing risk associated with legacy mortgage banking and national lending activities. In late 2009, FHN completed the sale of approximately $50 million of retained interests from prior securitizations. In third quarter 2009, FHN transferred mortgage servicing rights
to the original purchaser of certain previously sold equity lending products. This action was taken as part of a strategy to eliminate future repurchase obligations on these loans. Additionally, as part of the legacy mortgage banking business, certain FHN subsidiaries provided captive reinsurance on loans originated by
FHN. As a result of increased delinquencies, FHN increased reserves to reflect its obligations to fulfill reinsurance claims. In 2009, FHN agreed to settle certain of its reinsurance obligations with several of the primary insurers that led to a reduction of a substantial portion of these reserves.
5
FIRST HORIZON NATIONAL CORPORATION
Conserving capital and maintaining strong capital ratios remains a priority for FHN as actions initiated in 2008 were continued into 2009. Under FHNs participation in the U.S. Treasurys Capital Purchase Program that commenced in late 2008, preferred shares and a common stock warrant were issued to the UST
for $866.5 million in cash proceeds. In an effort to conserve capital, FHNs board of directors maintained the payment of a quarterly stock dividend in lieu of a cash dividend. In 2008, FHN completed the issuance of a common stock offering which bolstered capital. Capital ratios were also benefited by a
contracting balance sheet.
Return on average common equity and return on average assets for 2009 were negative 13.93 percent and negative .92 percent, respectively, compared to negative 7.87 percent and negative .52 percent in 2008. Tangible common equity to tangible common assets ratio improved to 7.75 percent in 2009 from
7.34 percent in 2008. Tier 1 capital ratio was 16.39 percent as of December 31, 2009, compared to 15.03 percent on December 31, 2008. Total assets were $26.1 billion and shareholders equity was $3.3 billion on December 31, 2009, compared to $31.0 billion and $3.6 billion, respectively, on December 31,
2008.
BUSINESS LINE REVIEW
Regional Banking
The Regional Banking segment had a pre-tax loss of $100.0 million in 2009 compared to a pre-tax loss of $81.7 million in 2008. Total revenues decreased 5 percent, or $40.2 million, to $816.8 million in 2009. The provision for loan losses decreased to $255.5 million in 2009 from $328.8 million in 2008. The
decrease in provision reflects grade stabilization in the Commercial portfolio during 2009 and an overall period-end decline in Commercial balances from 2008.
Net interest income decreased 2 percent to $498.3 million in 2009 from $506.4 million in 2008. The decrease in net interest income was primarily attributable to a declining loan demand, the effects of the historically low interest rate environment, and increased competition for deposits which was partially offset by
improved commercial loan pricing. Net interest margin in Regional Banking was 4.74 percent in 2009 compared to 4.59 percent in 2008. The increase in margin was driven by improved loan pricing and a decline in average earning assets.
Noninterest income declined 9 percent, or $32.1 million, in 2009 to $318.5 million. Over half of this decline in fee income was due to lower retail non-sufficient fund (NSF) fees in 2009 as deposit transactions and cash management fees were down $16.0 million from 2008. The trend in consumer NSF fees is
largely due to an overall decrease in retail transaction volumes from 2008. Trust revenues declined by $4.4 million from 2008 as the value of assets under management decreased consistent with overall market declines that occurred in the first half of 2009. Insurance commissions were down $3.3 million to $25.8
million from 2008 due to a soft market and reduced insurance product offerings. Bank card fees declined $1.1 million as consumer spending decreased and resulted in lower interchange fees in 2009. All other miscellaneous income declined to $70.4 million from $77.1 million in 2008 primarily driven by decreases
in annuity income and mutual fund sales.
Noninterest expense increased to $661.3 million in 2009 compared to $609.9 million in 2008. The year-over-year increase is attributable to several factors. Given the challenging operating environment, credit-related costs and losses on foreclosed properties have increased since 2008. Additionally, the Regional
Bank recognized higher FDIC deposit premiums, including the second quarter special assessment, in 2009 when compared with 2008. Lastly, technology costs and credit losses on customer derivatives increased during 2009.
Capital Markets
Pre-tax income increased from $120.1 million in 2008 to $200.9 million in 2009. Total revenues were $730.7 million in 2009 compared to $573.0 million in 2008.
Net interest income was $90.6 million in 2009 compared to $79.5 million in 2008 and the net interest margin improved 76 basis points to 2.51 percent during 2009. An increase in mortgage warehouse lending favorably impacted net interest income and the net interest margin. Additionally, improved spreads on
Capital Markets trading portfolio positively affected the net interest margin.
6
FIRST HORIZON NATIONAL CORPORATION
Revenue from fixed income sales increased to $598.6 million in 2009 from $493.8 million in 2008 reflecting favorable market conditions, particularly in the first half of 2009, combined with Capital Markets extensive distribution network. Revenues from other products, including fee income from activities such as
loan sales, portfolio advisory, derivative sales, and correspondent banking services, increased to $41.4 million in 2009 from ($.4) million in 2008. The increase in revenue is primarily due to a $36.2 million LOCOM adjustment that was taken on the trust preferred loan portfolio during 2008.
Provision expense increased to $113.5 million in 2009 from $80.1 million in 2008 which primarily reflects incremental deterioration in the bank holding company and trust preferred loan portfolios. See Credit Risk Management section for additional asset quality data.
Noninterest expense increased 12 percent, or $43.5 million, to $416.2 million in 2009, primarily due to increased variable personnel costs related to higher fixed income production in 2009. While legal and professional fees and operations services cost increased from 2008, generally, all other expense categories
were either flat or slightly decreased compared with 2008.
Mortgage Banking
In third quarter 2008, FHN completed the sale of Mortgage Bankings servicing operations, origination offices outside of Tennessee and servicing on loans with an outstanding principal balance of $19.1 billion. As a result of this transaction, components of origination activity and operating expenses for 2009 are
significantly lower when compared to 2008.
Pre-tax income was $35.6 million in 2009 compared to a pre-tax loss of $195.3 million in 2008. Total revenues declined by $370.9 million to $282.8 million in 2009.
Following the 2008 divestiture, Mortgage Banking derives interest income primarily from the remaining mortgage warehouse (which has significantly reduced post-divestiture), the permanent mortgage portfolio, and retained interests from prior securitizations that are classified as trading securities on the Consolidated
Statements of Condition. Net interest income decreased to $35.5 million in 2009 from $106.2 million in 2008 primarily due to a significantly contracted mortgage warehouse and custodial balances following the third quarter 2008 divestiture.
Provision expense decreased to $8.6 million in 2009 from $29.1 million in 2008 primarily due to an 18 percent decrease in the permanent portfolio from 2008, although this portfolio experienced some deterioration during 2009.
During 2009, noninterest income consists primarily of fees from mortgage servicing, changes in the fair value of servicing assets net of hedge gains or losses, fair value adjustments to the remaining warehouse, and origination income through the regional banking footprint. In periods prior to the divestiture, mortgage
banking fee income also reflected origination income through national channels and sales of mortgage loans into the secondary market. Noninterest income decreased to $247.3 million in 2009 compared to $547.5 million in 2008 due to a $199.3 million decline in origination income and $85.1 million decline in
servicing income.
In 2009, origination income was $24.3 million compared with $223.6 million in 2008 reflecting the 2008 divestiture. Mortgage origination income through the regional banking footprint generated $24.3 million in revenues and negative fair value adjustments to the mortgage warehouse were $6.4 million during 2009.
Origination income in 2008 was driven by considerably higher volumes given the national distribution channel and delivery of $19.9 billion of mortgage loans into the secondary market. Additionally, FHN recognized a $15.5 million negative adjustment to gain on sale as a result of revised cash flow expectations for
mortgage origination activity.
Net servicing income declined $85.1 million to $206.9 million in 2009 reflecting a substantial decline in the unpaid principal balance (UPB) of the servicing portfolio which was partially offset by the effects of lower net hedging gains in 2008. The average UPB of mortgage loans serviced through Mortgage
Banking during 2009 declined to $45.1 billion at the end of 2009 from $86.0 billion during 2008. FHN sold servicing rights on approximately $13 billion in UPB during 2009 and executed various MSR sales in 2008, including $19.1 billion sold in third quarter 2008 in conjunction with the sale of certain mortgage
banking operations. The contracting servicing portfolio resulted in a $111.6 million decline in servicing fees to $120.3 million in 2009. A slowdown in runoff of the
7
FIRST HORIZON NATIONAL CORPORATION
servicing portfolio positively affected servicing income in 2009 by $45.3 million which was somewhat mitigated by an $18.8 million decline in positive net hedging results. In 2008, other mortgage banking income was negatively impacted by a $6.5 million charge for minimum fee guarantees on prior servicing sales.
Noninterest expense was $238.6 million in 2009 compared to $429.3 million in 2008. Generally, with the exception of the increase in foreclosure and repurchase and private reinsurance obligations, all categories of noninterest expense declined from last year due to the 2008 divestiture. During 2009, provision
expense related to legacy mortgage foreclosure and repurchase obligations was $126.5 million compared to $11.5 million in 2008. Charges to increase reinsurance reserves due to increased estimated defaults on insured mortgages were $25.6 million in 2009 compared to $16.5 million in the prior year. See Critical
Accounting Policies for further discussion of FHNs estimate of foreclosure and repurchase obligations.
National Specialty Lending
National Specialty Lending had a pre-tax loss of $522.7 million in 2009 compared to a pre-tax loss of $569.8 million in 2008. The reduction in the 2009 pre-tax loss is primarily attributable to a $139.6 million decline in loan loss provision as the national construction portfolios have significantly contracted since
2008.
Net interest income declined to $122.8 million in 2009 compared to $189.7 million in 2008 as a result of the significant decline in commercial and consumer construction loan balances from 2008. Noninterest income was a loss of $8.8 million in 2009 compared to a loss of $10.5 million in 2008. During 2009,
noninterest income in this segment primarily consisted of servicing income, fair value adjustments to the MSR and other retained interests, and charges related to repurchase obligations. While servicing fees were down and charges for repurchase activity were higher in 2009, fee income improved slightly on
favorable fair value adjustments of the MSR and residual. Noninterest expense was $134.2 million in 2009 compared to $107.0 million in 2008. The increase in expense primarily reflects elevated costs related to foreclosed assets.
Corporate
The Corporate segments pre-tax loss was $34.4 million in 2009 compared to pre-tax income of $7.2 million in 2008. The $41.6 million decrease is a result of the combination of variances in restructuring, repositioning, and efficiency charges, items related to the Visa IPO and related legal matters, and gains on the
repurchase of debt. Net interest income was $29.3 million in 2009 compared to $13.3 million in 2008 primarily due to reduced higher-cost wholesale funding. Noninterest income was $37.7 million in 2009 compared to $3.2 million in 2008 reflecting a $30.6 million increase in deferred compensation income (more
than offset by an increase in deferred compensation expense) and a decline in restructuring charges reflected in noninterest income. Gains from the repurchase of bank debt were decreased $17.4 million from 2008 to $16.4 million in 2009. Additionally, a lower earnings rate on bank-owned life insurance (BOLI)
negatively affected noninterest income by $5.4 million. The redemption of Visa Inc.s shares in conjunction with its IPO resulted in a securities gain of $66.1 million in 2008.
Noninterest expense increased to $100.1 million in 2009 from $75.5 million in 2008. The increase is primarily attributable to the effect of reversing $30.0 million of the contingent liability for certain Visa legal matters in 2008 compared with a $7.0 million reversal in 2009; an increase in deferred compensation
expense (partially offset by a corresponding increase in deferred compensation income) and a lesser amount of restructuring, repositioning, and efficiency initiatives recognized within noninterest expense during 2009. (See Note 18 Restrictions, Contingencies, and Other Disclosures for a detailed discussion
surrounding FHNs contingent liability for certain Visa legal matters and the following discussion regarding FHNs restructuring, repositioning, and efficiency initiatives).
RESTRUCTURING, REPOSITIONING, AND EFFICIENCY INITIATIVES
Beginning in 2007, FHN began conducting a company-wide review of business practices with the goal of improving its overall profitability and productivity. In order to redeploy capital to higher-return businesses, FHN concluded the sale of 34 full-service First Horizon Bank branches in its national banking markets
in second quarter 2008 while also taking actions to right-size mortgage banking operations and to downsize FHNs national lending operations. Additionally, in January 2008, FHN discontinued national homebuilder and commercial real
8
FIRST HORIZON NATIONAL CORPORATION
estate lending through its First Horizon Construction Lending offices. FHN also repositioned mortgage banking operations through various MSR sales.
On August 31, 2008, FHN completed the sale of substantially all of FHNs mortgage origination pipeline, related hedges, certain fixed assets and other associated assets, while retaining the mortgage loan warehouse. FHN retained its mortgage operations in and around Tennessee, continuing to originate home loans
for customers in its regional banking market footprint. As part of this transaction, FHN also agreed to sell servicing assets and related hedges on $19.1 billion of first lien mortgage loans and associated custodial deposits. FHN also entered into a subservicing agreement for the remainder of FHNs servicing portfolio.
FHN generally received book value for the assets and liabilities sold, less a purchase price reduction. In 2008, FHN recognized a net loss on the divestiture of $16.6 million which is included in the noninterest income section of the Consolidated Statements of Income as losses on divestitures.
Continuing the efforts to refocus on core businesses, a definitive agreement was reached in third quarter 2009 for the sale of FTN ECM, the institutional equity research division of FTN Financial. FHN incurred a pre-tax goodwill impairment of $14.3 million (approximately $9 million, net of taxes) in 2009 in
conjunction with the execution of this agreement. The impairment and other restructuring, repositioning, and efficiency charges incurred by FTN ECM are included with their operating results in the Loss from discontinued operations, net of tax, line on the Consolidated Statements of Income for all periods presented.
During first quarter 2010, the contracted sale of FTN ECM failed to close, and FHN exited this business. See Note 28 Other Events for additional discussion related to actions occurring in 2010. Other transactions that occurred in late 2009 were the sale and closures of FERP and Atlanta insurance operations and
the cancellation of a large services/consulting contract. Losses on divestiture were $7.5 million and $1.7 million for the divestiture of the Atlanta insurance business and FERP, respectively, which include write-downs of associated goodwill. FHN incurred additional costs for closure of these locations in 2009,
including goodwill impairment of $2.3 million. FHN also terminated an outsourcing contract in fourth quarter 2009 which triggered a $13.4 million charge.
Net costs recognized by FHN in the year ended December 31, 2009, related to restructuring, repositioning, and efficiency activities were $51.9 million. Of this amount, $12.4 million represented exit costs that were accounted for in accordance with the FASB Accounting Standards Codification Topic for Exit or
Disposal Activities Cost Obligations (ASC 420). Significant expenses recognized during 2009, including items presented in discontinued operations, net of tax, resulted from the following actions:
|
|
|
|
|
Severance and related employee costs of $5.6 million related to discontinuation of national lending operations and the sales and closures of FERP and the Atlanta insurance business. |
|
|
|
|
|
Loss on divestiture of $9.2 million related to the FERP and Atlanta insurance transactions. |
|
|
|
|
|
Loss of $13.4 million related to cancellation of consulting contract. |
|
|
|
|
|
Goodwill impairment of $14.3 million related to agreement to sell FTN ECM and $2.3 million related to sale/transfer of Atlanta insurance books of business.
|
Net costs recognized by FHN in the year ended December 31, 2008, related to restructuring, repositioning, and efficiency activities were $91.4 million. Of this amount, $49.1 million represented exit costs accounted for in accordance with ASC 420. Significant expenses recognized in 2008 resulted from the following
actions:
|
|
|
|
|
Expense of $49.1 million associated with organizational and compensation changes due to right-sizing operating segments, the divestiture of certain First Horizon Bank branches, the divestiture of certain mortgage banking operations, and consolidating functional areas. |
|
|
|
|
|
Loss of $16.6 million on the divestiture of mortgage banking operations. |
|
|
|
|
|
Loss of $2.4 million from the sales of certain First Horizon Bank branches. |
|
|
|
|
|
Transaction costs of $12.7 million from the contracted sales of mortgage servicing rights. |
|
|
|
|
|
Expense of $10.7 million for the write-down of certain premises and equipment, intangibles, and other assets resulting from FHNs divestiture of certain mortgage operations and from the change in FHNs national banking strategy.
|
9
FIRST HORIZON NATIONAL CORPORATION
Net costs recognized by FHN in the year ended December 31, 2007, related to restructuring, repositioning, and efficiency activities were $98.7 million. Of this amount, $47.9 million represented exit costs accounted for in accordance with ASC 420. Significant expenses recognized in 2007 resulted from the following
actions:
|
|
|
|
|
Expense of $20.4 million associated with organizational and compensation changes for right-sizing operating segments and consolidating functional areas. |
|
|
|
|
|
Non-core business repositioning costs of $17.4 million, including costs associated with the exit of the collectible coin merchandising business and the transition of the non-prime mortgage origination business to a broker model. |
|
|
|
|
|
Expense of $17.2 million related to other restructuring, repositioning, and efficiency initiatives, including facilities consolidation, procurement centralization, multi-sourcing, and the divestiture of certain loan portfolios. |
|
|
|
|
|
Costs of $24.3 million related to the divestiture of 34 full-service First Horizon Bank locations in Virginia, Maryland, Georgia, and Texas, including $13.9 million for the write-down of goodwill and other intangibles; partially offset by $15.7 million of gains realized in 2007 from the disposition of 15 of these
locations. |
|
|
|
|
|
Expense of $11.3 million related to the restructuring of mortgage operations and national lending operations through office closures, associated sales force decreases, and the reduction of management and support staff. |
|
|
|
|
|
Expense of $17.4 million for asset impairments related to the discontinuation of technology projects. |
|
|
|
|
|
Transaction costs of $6.4 million from sales of mortgage servicing rights.
|
Provision for loan losses of $7.7 million was incurred during 2007 in relation to the divestiture of a non-strategic loan portfolio. Gains or losses from the divestitures of the Atlanta insurance business, FERP, certain mortgage banking operations, and First Horizon Bank branches are included in gains/(losses) on
divestitures in the noninterest income section of the Consolidated Statements of Income. Transaction costs related to transfers of mortgage servicing rights are recorded as a reduction of mortgage banking income in the noninterest income section of the Consolidated Statements of Income. All other costs associated
with the restructuring, repositioning, and efficiency initiatives implemented by management are included in the noninterest expense section of the Consolidated Statements of Income, including severance and other employee-related costs which are recorded in employee compensation, incentives, and benefits,
facilities consolidation costs and related asset impairment costs which are included in occupancy, costs associated with the impairment of premises and equipment which are included in equipment rentals, depreciation, and maintenance. Other costs associated with such initiatives including intangible asset
impairment costs and asset impairment costs related to the discontinuation of technology projects are included in all other expense and goodwill impairment.
Settlement of the obligations arising from current initiatives will be funded from operating cash flows. The effect of suspending depreciation on assets held for sale was immaterial to FHNs results of operations for all periods. As a result of the change in FHNs national banking strategy, a write-down of other
intangibles of $2.4 million was recognized in first quarter 2008 related to certain banking licenses. As part of the divestiture of certain mortgage banking operations, an impairment of $1.7 million was recognized in second quarter 2008 related to noncompete agreements. Additionally, in 2009, FHN incurred charges
of $.2 million to write off customer lists as a result of the sale and closure of the Atlanta insurance business, a $14.3 million goodwill impairment related to the agreement to sell FTN ECM, and a $2.3 million goodwill impairment on assets excluded from the sale of the Atlanta insurance business. The recognition of
these impairment losses will have no effect on FHNs debt covenants. The impairment losses related to such intangible assets were recorded as an unallocated corporate charge within the Corporate segment and is included in all other expense on the Consolidated Statements of Income. Due to the broad nature of
the actions being taken, all components of income and expense are expected to benefit from the efficiency initiatives.
Charges related to restructuring, repositioning, and efficiency initiatives for the twelve months ended December 31, 2009, 2008, and 2007 are presented in the following table based on the income statement line item affected. See Note 26 Restructuring, Repositioning, and Efficiency Charges and Note 2
Acquisitions/Divestitures for additional information.
10
FIRST HORIZON NATIONAL CORPORATION
Table 1 - Restructuring, Repositioning, and Efficiency Initiatives
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Provision for loan losses related to divestiture of a loan portfolio |
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
7,672 |
|
Noninterest income: |
|
|
|
|
|
|
Mortgage banking |
|
|
|
(548 |
) |
|
|
|
|
(12,667 |
) |
|
|
|
|
(6,428 |
) |
|
Gains/(losses) on divestitures |
|
|
|
(9,183 |
) |
|
|
|
|
(19,019 |
) |
|
|
|
|
15,695 |
|
|
Total noninterest income/(loss) |
|
|
$ |
|
(9,731 |
) |
|
|
|
$ |
|
(31,686 |
) |
|
|
|
$ |
|
9,267 |
|
|
Adjusted gross income/(loss) after provision for loan losses |
|
|
$ |
|
(9,731 |
) |
|
|
|
$ |
|
(31,686 |
) |
|
|
|
$ |
|
1,595 |
|
|
Noninterest expense: |
|
|
|
|
|
|
Employee compensation, incentives, and benefits |
|
|
$ |
|
5,432 |
|
|
|
$ |
|
23,974 |
|
|
|
$ |
|
25,580 |
|
Occupancy |
|
|
|
1,985 |
|
|
|
|
8,141 |
|
|
|
|
14,163 |
|
Equipment rentals, depreciation, and maintenance |
|
|
|
- |
|
|
|
|
4,340 |
|
|
|
|
6,481 |
|
Legal and professional fees |
|
|
|
702 |
|
|
|
|
4,342 |
|
|
|
|
9,972 |
|
Operations services |
|
|
|
- |
|
|
|
|
1 |
|
|
|
|
359 |
|
Communications and courier |
|
|
|
16 |
|
|
|
|
42 |
|
|
|
|
28 |
|
Goodwill impairment |
|
|
|
2,294 |
|
|
|
|
- |
|
|
|
|
13,010 |
|
All other expense |
|
|
|
17,296 |
|
|
|
|
18,473 |
|
|
|
|
30,438 |
|
|
Total noninterest expense |
|
|
$ |
|
27,725 |
|
|
|
$ |
|
59,313 |
|
|
|
$ |
|
100,031 |
|
|
Loss before income taxes |
|
|
$ |
|
(37,456 |
) |
|
|
|
$ |
|
(90,999 |
) |
|
|
|
$ |
|
(98,436 |
) |
|
Loss from discontinued operations |
|
|
|
(14,470 |
) |
|
|
|
|
(414 |
) |
|
|
|
|
(282 |
) |
|
|
Net charges resulting from restructuring, repositioning, and efficiency initiatives |
|
|
$ |
|
(51,926 |
) |
|
|
|
$ |
|
(91,413 |
) |
|
|
|
$ |
|
(98,718 |
) |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
Activity in the restructuring and repositioning liability for the twelve months ended December 31, 2009, 2008, and 2007 is presented in the following table:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Beginning Balance: January 1 |
|
|
$ |
|
24,167 |
|
|
|
$ |
|
19,675 |
|
|
|
$ |
|
- |
|
Severance and other employee related costs |
|
|
|
5,612 |
|
|
|
|
24,400 |
|
|
|
|
25,532 |
|
Facility consolidation costs |
|
|
|
6,511 |
|
|
|
|
16,751 |
|
|
|
|
13,131 |
|
Other exit costs, professional fees, and other |
|
|
|
322 |
|
|
|
|
7,902 |
|
|
|
|
9,255 |
|
|
Total Accrued |
|
|
$ |
|
36,612 |
|
|
|
$ |
|
68,728 |
|
|
|
$ |
|
47,918 |
|
Payments related to: |
|
|
|
|
|
|
Severance and other employee related costs |
|
|
$ |
|
9,840 |
|
|
|
$ |
|
16,235 |
|
|
|
$ |
|
15,174 |
|
Facility consolidation costs |
|
|
|
8,868 |
|
|
|
|
14,223 |
|
|
|
|
3,992 |
|
Other exit costs, professional fees, and other |
|
|
|
874 |
|
|
|
|
7,558 |
|
|
|
|
7,915 |
|
Accrual Reversals |
|
|
|
1,127 |
|
|
|
|
6,545 |
|
|
|
|
1,162 |
|
|
Restructuring and Repositioning Reserve Balance: December 31 |
|
|
$ |
|
15,903 |
|
|
|
$ |
|
24,167 |
|
|
|
$ |
|
19,675 |
|
|
INCOME STATEMENT REVIEW 2009 COMPARED TO 2008
Total consolidated revenue decreased 14 percent to $2.0 billion from $2.3 billion in 2008 despite record capital markets income as mortgage banking income significantly decreased from 2008. A more detailed discussion of the major line items follows:
11
FIRST HORIZON NATIONAL CORPORATION
NET INTEREST INCOME
Net interest income declined to $776.5 million in 2009 from $895.1 million in 2008 as average earning assets declined 17 percent to $25.4 billion and average interest-bearing liabilities declined 22 percent to $23.7 billion in 2009. See also the Consolidated Average Balance Sheet and Related Yields and Rates
table.
The activity levels and related funding for FHNs capital markets activities affect the net interest margin. Capital markets activities tend to compress the margin because of the strategy to reduce market risk by economically hedging a portion of its inventory on the balance sheet. Likewise, in periods prior to the
divestiture of certain mortgage banking operations, mortgage production and servicing activities also affected the margin. Such factors include the shape of the yield curve, the size of the mortgage warehouse, the time it took to deliver loans into the secondary market, the amount of custodial balances, and the level
of MSR. As a result, FHNs consolidated margin cannot be readily compared to that of other bank holding companies. Table 2 details the computation of the net interest margin for FHN for the last three years.
As reflected in Table 3, net interest income (FTE-adjusted) declined $118.9 million primarily due to reduction in interest income from the loan portfolio, partially mitigated by improved funding costs. The consolidated net interest margin was 3.06 percent for 2009 compared to 2.95 percent for 2008. The widening in
the margin occurred as the net interest spread increased to 2.80 percent from 2.55 percent in 2008 and the impact of free funding decreased from 40 basis points to 26 basis points. The increase in the margin is attributable to a decline in higher-cost wholesale funding, lower effect from nonaccrual loans,
improved loan pricing relative to deposit pricing, and changing balance sheet mix.
Table 2 - Net Interest Margin
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
Consolidated yields and rates: |
|
|
|
|
|
|
Loans, net of unearned income |
|
|
|
3.93 |
% |
|
|
|
|
5.33 |
% |
|
|
|
|
7.34 |
% |
|
Loans held for sale |
|
|
|
4.72 |
|
|
|
|
5.86 |
|
|
|
|
6.54 |
|
Investment securities |
|
|
|
4.98 |
|
|
|
|
5.49 |
|
|
|
|
5.59 |
|
Capital markets securities inventory |
|
|
|
3.79 |
|
|
|
|
4.57 |
|
|
|
|
5.29 |
|
Mortgage banking trading securities |
|
|
|
12.47 |
|
|
|
|
12.98 |
|
|
|
|
12.28 |
|
Other earning assets |
|
|
|
0.18 |
|
|
|
|
1.84 |
|
|
|
|
4.88 |
|
|
Yields on earning assets |
|
|
|
3.92 |
|
|
|
|
5.29 |
|
|
|
|
6.91 |
|
|
Interest-bearing core deposits |
|
|
|
1.20 |
|
|
|
|
2.26 |
|
|
|
|
3.34 |
|
Certificates of deposit $100,000 and more |
|
|
|
2.02 |
|
|
|
|
3.79 |
|
|
|
|
5.36 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
|
|
0.21 |
|
|
|
|
2.04 |
|
|
|
|
4.72 |
|
Capital markets trading liabilities |
|
|
|
3.89 |
|
|
|
|
4.73 |
|
|
|
|
5.42 |
|
Commercial paper and other short-term borrowings |
|
|
|
0.29 |
|
|
|
|
2.33 |
|
|
|
|
4.83 |
|
Long-term debt |
|
|
|
1.43 |
|
|
|
|
3.56 |
|
|
|
|
5.67 |
|
|
Rates paid on interest-bearing liabilities |
|
|
|
1.12 |
|
|
|
|
2.74 |
|
|
|
|
4.72 |
|
|
Net interest spread |
|
|
|
2.80 |
|
|
|
|
2.55 |
|
|
|
|
2.19 |
|
Effect of interest-free sources |
|
|
|
0.26 |
|
|
|
|
0.40 |
|
|
|
|
0.63 |
|
|
FHN NIM |
|
|
|
3.06 |
% |
|
|
|
|
2.95 |
% |
|
|
|
|
2.82 |
% |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
FHNs net interest margin is expected to stabilize over the next few periods as FHN focuses on loan and deposit pricing discipline while new loan growth is expected to be moderate.
Table 3 shows how the changes in yields or rates and average balances compared to the prior year affected net interest income.
12
FIRST HORIZON NATIONAL CORPORATION
Table 3 - Analysis of Changes in Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
(Fully taxable equivalent) (Dollars in thousands) |
|
2009 Compared to 2008 Increase/(Decrease) Due to* |
|
2008 Compared to 2007 Increase/(Decrease) Due to* |
|
Rate** |
|
Volume** |
|
Total |
|
Rate** |
|
Volume** |
|
Total |
|
Interest income FTE: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
$ |
|
(280,052 |
) |
|
|
|
$ |
|
(103,691 |
) |
|
|
|
$ |
|
(383,743 |
) |
|
|
|
$ |
|
(436,294 |
) |
|
|
|
$ |
|
(31,897 |
) |
|
|
|
$ |
|
(468,191 |
) |
|
Loans held for sale |
|
|
|
(24,592 |
) |
|
|
|
|
(101,150 |
) |
|
|
|
|
(125,742 |
) |
|
|
|
|
(24,906 |
) |
|
|
|
|
(77,126 |
) |
|
|
|
|
(102,032 |
) |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
|
(216 |
) |
|
|
|
|
74 |
|
|
|
|
(142 |
) |
|
|
|
|
(1,848 |
) |
|
|
|
|
(1,859 |
) |
|
|
|
|
(3,707 |
) |
|
U.S. government agencies |
|
|
|
(5,947 |
) |
|
|
|
|
(9,584 |
) |
|
|
|
|
(15,531 |
) |
|
|
|
|
(3,297 |
) |
|
|
|
|
(22,740 |
) |
|
|
|
|
(26,037 |
) |
|
States and municipalities |
|
|
|
(1,305 |
) |
|
|
|
|
534 |
|
|
|
|
(771 |
) |
|
|
|
|
328 |
|
|
|
|
1,517 |
|
|
|
|
1,845 |
|
Other |
|
|
|
(6,204 |
) |
|
|
|
|
2,000 |
|
|
|
|
(4,204 |
) |
|
|
|
|
1,092 |
|
|
|
|
741 |
|
|
|
|
1,833 |
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
|
(14,554 |
) |
|
|
|
|
(6,094 |
) |
|
|
|
|
(20,648 |
) |
|
|
|
|
(3,591 |
) |
|
|
|
|
(22,475 |
) |
|
|
|
|
(26,066 |
) |
|
|
|
|
|
|
|
|
|
|
Capital markets securities inventory |
|
|
|
(10,408 |
) |
|
|
|
|
(22,134 |
) |
|
|
|
|
(32,542 |
) |
|
|
|
|
(14,318 |
) |
|
|
|
|
(31,176 |
) |
|
|
|
|
(45,494 |
) |
|
Mortgage banking trading securities |
|
|
|
(1,629 |
) |
|
|
|
|
(27,441 |
) |
|
|
|
|
(29,070 |
) |
|
|
|
|
3,118 |
|
|
|
|
(17,029 |
) |
|
|
|
|
(13,911 |
) |
|
Other earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased under agreements to resell |
|
|
|
(15,138 |
) |
|
|
|
|
(6,949 |
) |
|
|
|
|
(22,087 |
) |
|
|
|
|
(34,953 |
) |
|
|
|
|
(7,747 |
) |
|
|
|
|
(42,700 |
) |
|
Interest-bearing deposits with other financial institutions |
|
|
|
(2,010 |
) |
|
|
|
|
1,768 |
|
|
|
|
(242 |
) |
|
|
|
|
(2,608 |
) |
|
|
|
|
2,432 |
|
|
|
|
(176 |
) |
|
|
|
|
|
|
|
|
|
|
Total other earning assets |
|
|
|
(21,373 |
) |
|
|
|
|
(956 |
) |
|
|
|
|
(22,329 |
) |
|
|
|
|
(40,893 |
) |
|
|
|
|
(1,983 |
) |
|
|
|
|
(42,876 |
) |
|
|
|
|
|
|
|
|
|
|
Total earning assets/total interest income FTE |
|
|
|
(372,907 |
) |
|
|
|
|
(241,167 |
) |
|
|
|
$ |
|
(614,074 |
) |
|
|
|
|
(507,383 |
) |
|
|
|
|
(191,188 |
) |
|
|
|
$ |
|
(698,570 |
) |
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
$ |
|
(45,143 |
) |
|
|
|
$ |
|
4,108 |
|
|
|
$ |
|
(41,035 |
) |
|
|
|
$ |
|
(56,064 |
) |
|
|
|
$ |
|
20,031 |
|
|
|
$ |
|
(36,033 |
) |
|
Time deposits |
|
|
|
(26,491 |
) |
|
|
|
|
(13,877 |
) |
|
|
|
|
(40,368 |
) |
|
|
|
|
(19,764 |
) |
|
|
|
|
(15,582 |
) |
|
|
|
|
(35,346 |
) |
|
Other interest-bearing deposits |
|
|
|
(10,310 |
) |
|
|
|
|
1,460 |
|
|
|
|
(8,850 |
) |
|
|
|
|
(11,594 |
) |
|
|
|
|
(396 |
) |
|
|
|
|
(11,990 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing core deposits |
|
|
|
(91,596 |
) |
|
|
|
|
1,343 |
|
|
|
|
(90,253 |
) |
|
|
|
|
(93,785 |
) |
|
|
|
|
10,417 |
|
|
|
|
(83,369 |
) |
|
|
|
|
|
|
|
|
|
|
Certificates of deposit $100,000 and more |
|
|
|
(28,794 |
) |
|
|
|
|
(19,791 |
) |
|
|
|
|
(48,585 |
) |
|
|
|
|
(86,029 |
) |
|
|
|
|
(206,992 |
) |
|
|
|
|
(293,021 |
) |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
|
|
(49,530 |
) |
|
|
|
|
(15,016 |
) |
|
|
|
|
(64,546 |
) |
|
|
|
|
(104,633 |
) |
|
|
|
|
(54,624 |
) |
|
|
|
|
(159,257 |
) |
|
Capital markets trading liabilities |
|
|
|
(5,225 |
) |
|
|
|
|
(7,101 |
) |
|
|
|
|
(12,326 |
) |
|
|
|
|
(6,102 |
) |
|
|
|
|
(12,219 |
) |
|
|
|
|
(18,321 |
) |
|
Other short term borrowings and commercial paper |
|
|
|
(72,287 |
) |
|
|
|
|
(39,780 |
) |
|
|
|
|
(112,067 |
) |
|
|
|
|
(48,641 |
) |
|
|
|
|
103,392 |
|
|
|
|
54,751 |
|
Long-term debt |
|
|
|
(97,678 |
) |
|
|
|
|
(69,717 |
) |
|
|
|
|
(167,395 |
) |
|
|
|
|
(130,088 |
) |
|
|
|
|
(24,369 |
) |
|
|
|
|
(154,457 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities/total interest expense |
|
|
|
(343,513 |
) |
|
|
|
|
(151,659 |
) |
|
|
|
$ |
|
(495,172 |
) |
|
|
|
|
(527,686 |
) |
|
|
|
|
(125,987 |
) |
|
|
|
$ |
|
(653,674 |
) |
|
|
|
|
Net interest income FTE |
|
|
|
|
|
|
$ |
|
(118,902 |
) |
|
|
|
|
|
|
|
$ |
|
(44,896 |
) |
|
|
|
* |
|
|
|
The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each. |
|
** |
|
|
|
Variances are computed on a line-by-line basis and are non-additive.
|
NONINTEREST INCOME
Noninterest income contributed 61 percent to total revenue in 2009 compared to 62 percent in 2008 while decreasing by $216.9 million to $1.2 billion in 2009. The decrease primarily resulted from a decline in mortgage banking income and securities gains that were somewhat mitigated by a significant increase in
capital markets income. FHNs noninterest income for the most recent 6 years is provided in Table 4. The following discussion provides additional information about various line items reported in the table.
13
FIRST HORIZON NATIONAL CORPORATION
Table 4 - Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Compound Annual Growth Rates (%) |
|
09/08 |
|
09/04 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital markets |
|
|
$ |
|
632,093 |
|
|
|
$ |
|
483,526 |
|
|
|
$ |
|
284,236 |
|
|
|
$ |
|
320,004 |
|
|
|
$ |
|
286,150 |
|
|
|
$ |
|
313,367 |
|
|
|
|
30.7 |
+ |
|
|
|
|
15.1 |
+ |
|
Mortgage banking |
|
|
|
235,450 |
|
|
|
|
518,034 |
|
|
|
|
69,454 |
|
|
|
|
370,613 |
|
|
|
|
479,618 |
|
|
|
|
444,758 |
|
|
|
|
54.5 |
- |
|
|
|
|
11.9 |
- |
|
Deposit transactions and cash management |
|
|
|
163,761 |
|
|
|
|
179,034 |
|
|
|
|
175,271 |
|
|
|
|
168,599 |
|
|
|
|
156,190 |
|
|
|
|
148,511 |
|
|
|
|
8.5 |
- |
|
|
|
|
2.0 |
+ |
|
Trust services and investment management |
|
|
|
29,482 |
|
|
|
|
33,821 |
|
|
|
|
40,335 |
|
|
|
|
41,514 |
|
|
|
|
44,614 |
|
|
|
|
47,274 |
|
|
|
|
12.8 |
- |
|
|
|
|
9.0 |
- |
|
Brokerage management fees and commissions |
|
|
|
26,934 |
|
|
|
|
32,234 |
|
|
|
|
37,830 |
|
|
|
|
37,182 |
|
|
|
|
30,865 |
|
|
|
|
28,590 |
|
|
|
|
16.4 |
- |
|
|
|
|
1.2 |
- |
|
Insurance commissions |
|
|
|
25,248 |
|
|
|
|
29,104 |
|
|
|
|
31,739 |
|
|
|
|
46,632 |
|
|
|
|
54,091 |
|
|
|
|
56,109 |
|
|
|
|
13.2 |
- |
|
|
|
|
14.8 |
- |
|
Debt securities gains/(losses), net |
|
|
|
- |
|
|
|
|
761 |
|
|
|
|
6,292 |
|
|
|
|
(75,900 |
) |
|
|
|
|
1 |
|
|
|
|
18,708 |
|
|
|
|
NM |
|
|
|
|
NM |
|
Equity securities gains/(losses), net |
|
|
|
(1,178 |
) |
|
|
|
|
65,349 |
|
|
|
|
(7,475 |
) |
|
|
|
|
10,271 |
|
|
|
|
(579 |
) |
|
|
|
|
2,040 |
|
|
|
|
101.8 |
- |
|
|
|
|
189.6 |
- |
|
Gains/(losses) on divestitures |
|
|
|
(9,183 |
) |
|
|
|
|
(19,019 |
) |
|
|
|
|
15,695 |
|
|
|
|
- |
|
|
|
|
7,029 |
|
|
|
|
1,200 |
|
|
|
|
51.7 |
+ |
|
|
|
|
NM |
|
All other income and commissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard income |
|
|
|
20,161 |
|
|
|
|
22,081 |
|
|
|
|
24,874 |
|
|
|
|
26,105 |
|
|
|
|
27,136 |
|
|
|
|
24,993 |
|
|
|
|
8.7 |
- |
|
|
|
|
4.2 |
- |
|
Bank-owned life insurance |
|
|
|
19,744 |
|
|
|
|
25,143 |
|
|
|
|
25,172 |
|
|
|
|
19,064 |
|
|
|
|
16,335 |
|
|
|
|
12,842 |
|
|
|
|
21.5 |
- |
|
|
|
|
9.0 |
+ |
|
Gains on repurchases of debt |
|
|
|
16,412 |
|
|
|
|
33,845 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
NM |
|
|
|
|
NM |
|
Remittance processing |
|
|
|
11,765 |
|
|
|
|
12,953 |
|
|
|
|
13,451 |
|
|
|
|
14,737 |
|
|
|
|
15,411 |
|
|
|
|
19,515 |
|
|
|
|
9.2 |
- |
|
|
|
|
9.6 |
- |
|
Other service charges |
|
|
|
11,647 |
|
|
|
|
12,631 |
|
|
|
|
14,296 |
|
|
|
|
14,560 |
|
|
|
|
14,330 |
|
|
|
|
11,498 |
|
|
|
|
7.8 |
- |
|
|
|
|
* |
|
ATM interchange fees |
|
|
|
11,335 |
|
|
|
|
9,224 |
|
|
|
|
8,472 |
|
|
|
|
7,091 |
|
|
|
|
5,995 |
|
|
|
|
4,973 |
|
|
|
|
22.9 |
+ |
|
|
|
|
17.9 |
+ |
|
Reinsurance fees |
|
|
|
9,130 |
|
|
|
|
11,919 |
|
|
|
|
9,052 |
|
|
|
|
6,792 |
|
|
|
|
5,850 |
|
|
|
|
5,913 |
|
|
|
|
23.4 |
- |
|
|
|
|
9.1 |
+ |
|
Deferred compensation (a) |
|
|
|
7,686 |
|
|
|
|
(22,901 |
) |
|
|
|
|
7,727 |
|
|
|
|
14,647 |
|
|
|
|
7,721 |
|
|
|
|
8,633 |
|
|
|
|
133.6 |
+ |
|
|
|
|
2.3 |
- |
|
Electronic banking fees |
|
|
|
6,020 |
|
|
|
|
6,217 |
|
|
|
|
6,561 |
|
|
|
|
5,975 |
|
|
|
|
5,977 |
|
|
|
|
6,071 |
|
|
|
|
3.2 |
- |
|
|
|
|
* |
|
Letter of credit fees |
|
|
|
5,989 |
|
|
|
|
5,657 |
|
|
|
|
6,738 |
|
|
|
|
7,271 |
|
|
|
|
7,883 |
|
|
|
|
6,793 |
|
|
|
|
5.9 |
+ |
|
|
|
|
2.5 |
- |
|
Gains/(losses) from loans sales and securitizations |
|
|
|
2,545 |
|
|
|
|
(8,625 |
) |
|
|
|
|
23,881 |
|
|
|
|
51,675 |
|
|
|
|
47,575 |
|
|
|
|
23,115 |
|
|
|
|
129.5 |
+ |
|
|
|
|
35.7 |
- |
|
Federal flood certifications |
|
|
|
- |
|
|
|
|
3,869 |
|
|
|
|
5,212 |
|
|
|
|
5,454 |
|
|
|
|
9,950 |
|
|
|
|
6,181 |
|
|
|
|
NM |
|
|
|
|
NM |
|
Other (b) |
|
|
|
8,490 |
|
|
|
|
15,561 |
|
|
|
|
7,999 |
|
|
|
|
11,564 |
|
|
|
|
18,257 |
|
|
|
|
27,556 |
|
|
|
|
45.4 |
- |
|
|
|
|
21.0 |
- |
|
|
|
|
Total all other income and commissions |
|
|
|
130,924 |
|
|
|
|
127,574 |
|
|
|
|
153,435 |
|
|
|
|
184,935 |
|
|
|
|
182,420 |
|
|
|
|
158,083 |
|
|
|
|
2.6 |
+ |
|
|
|
|
3.7 |
- |
|
|
|
|
Total noninterest income |
|
|
$ |
|
1,233,531 |
|
|
|
$ |
|
1,450,418 |
|
|
|
$ |
|
806,812 |
|
|
|
$ |
|
1,103,850 |
|
|
|
$ |
|
1,240,399 |
|
|
|
$ |
|
1,218,640 |
|
|
|
|
15.0 |
- |
|
|
|
|
* |
|
|
|
|
NM not meaningful
|
* |
|
|
|
Amount is less than one percent. |
|
(a) |
|
|
|
Deferred compensation market value adjustments are offset by a reduction to noninterest other expense. |
|
(b) |
|
|
|
2009 and 2008 includes charges of $22.0 million and $15.5 million, respectively, to increase reserves for estimate to repurchase HELOC and second liens from prior loan sales.
|
Capital Markets Noninterest Income
The major component of revenue in the Capital Markets segment is generated from the purchase and sale of securities as both principal and agent, and from other fee sources including loan sales, portfolio advisory, derivative sales, and correspondent banking services. Securities inventory positions are generally
procured for distribution to customers by the sales staff. A portion of the inventory is hedged to protect against movements in fair value due to changes in interest rates.
Capital markets noninterest income increased to $632.1 million in 2009 from $483.5 million in 2008. Revenues from fixed income sales increased $104.8 million to $598.6 million in 2009 due to favorable market conditions (especially in the first half of the year) combined with an extensive distribution network.
While still strong, fixed income revenues decreased in the second half of the year as market conditions began to normalize. Revenues from other products, such as loan sales, portfolio advisory, derivative sales, and correspondent banking services, represented 5.3 percent of total capital markets income in 2009.
These revenues increased $43.8 million primarily due to a $36.2 million LOCOM adjustment that was recognized on the trust preferred portfolio during 2008.
14
FIRST HORIZON NATIONAL CORPORATION
Table 5 - Capital Markets Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Compound Annual Growth Rates (%) |
|
09/08 |
|
09/07 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
|
$ |
|
598,604 |
|
|
|
$ |
|
493,836 |
|
|
|
$ |
|
217,700 |
|
|
|
|
21.2 |
+ |
|
|
|
|
65.8 |
+ |
|
Other product revenue |
|
|
|
33,489 |
|
|
|
|
(10,310 |
) |
|
|
|
|
66,536 |
|
|
|
|
NM |
|
|
|
|
29.1 |
- |
|
|
|
|
Total capital markets noninterest income |
|
|
$ |
|
632,093 |
|
|
|
$ |
|
483,526 |
|
|
|
$ |
|
284,236 |
|
|
|
|
30.7 |
+ |
|
|
|
|
49.1 |
+ |
|
|
|
|
NM not meaningful
Mortgage Banking Noninterest Income
In third quarter 2008, FHN completed the sale of Mortgage Bankings servicing operations, origination offices outside of Tennessee, and servicing on loans with an outstanding principal balance of $19.1 billion. As a result of this transaction and the execution of multiple bulk MSR sales during 2008 and 2009,
origination and servicing income are significantly lower when compared to 2008.
Mortgage banking noninterest income decreased to $235.5 million from $518.0 million in 2008 as shown in Table 6.
Table 6 - Mortgage Banking Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
Compound Annual Growth Rates (%) |
|
09/08 |
|
09/07 |
|
Noninterest income (thousands): |
|
|
|
|
|
|
|
|
|
|
Origination income |
|
|
$ |
|
24,334 |
|
|
|
$ |
|
223,596 |
|
|
|
$ |
|
118,436 |
|
|
|
|
89.1 |
- |
|
|
|
|
54.7 |
- |
|
Servicing income/(expense) |
|
|
|
206,883 |
|
|
|
|
291,962 |
|
|
|
|
(68,857 |
) |
|
|
|
|
29.1 |
- |
|
|
|
|
NM |
|
Other |
|
|
|
4,233 |
|
|
|
|
2,477 |
|
|
|
|
19,875 |
|
|
|
|
70.9 |
+ |
|
|
|
|
53.9 |
- |
|
|
|
|
Total mortgage banking noninterest income |
|
|
$ |
|
235,450 |
|
|
|
$ |
|
518,035 |
|
|
|
$ |
|
69,454 |
|
|
|
|
54.5 |
- |
|
|
|
|
84.1 |
+ |
|
|
|
|
Mortgage banking statistics (millions): |
|
|
|
|
|
|
|
|
|
|
Refinance originations |
|
|
$ |
|
1,086.6 |
|
|
|
$ |
|
8,975.9 |
|
|
|
$ |
|
10,872.2 |
|
|
|
|
87.9 |
- |
|
|
|
|
68.4 |
- |
|
Home-purchase originations |
|
|
|
192.3 |
|
|
|
|
8,465.9 |
|
|
|
|
16,502.9 |
|
|
|
|
97.7 |
- |
|
|
|
|
89.2 |
- |
|
|
|
|
Mortgage loan originations |
|
|
$ |
|
1,278.9 |
|
|
|
$ |
|
17,441.8 |
|
|
|
$ |
|
27,375.1 |
|
|
|
|
92.7 |
- |
|
|
|
|
78.4 |
- |
|
|
|
|
Servicing portfolio owned |
|
|
$ |
|
39,752.4 |
|
|
|
$ |
|
63,660.7 |
|
|
|
$ |
|
103,708.7 |
|
|
|
|
37.6 |
- |
|
|
|
|
38.1 |
- |
|
|
|
|
Prior to adoption of certain accounting standards in 2008, origination income included origination fees, net of costs, gains/(losses) recognized on loans sold including the capitalized fair value of MSR, and the value recognized on loans in process including results from hedging. Origination fees, net of costs
(including incentives and other direct costs), were deferred, and included in the basis of the loans in calculating gains and losses upon sale. Gain or loss was recognized due to changes in fair value of an interest rate lock commitment made to the customer. Gains or losses from the sale of loans were recognized
at the time a mortgage loan was sold into the secondary market. See Critical Accounting Policies and Note 1 Summary of Significant Accounting Policies for more discussion of the effects of adopting these accounting standards.
Upon adoption of the new accounting standards, origination income includes origination fees, fair value and LOCOM adjustments of the warehouse, gains/(losses) recognized on loans sold including the capitalized fair value of MSR, and the value recognized on loans in process including results from hedging. Upon
election of fair value accounting for substantially all warehouse loans, the value recognized on these loans includes changes in investor prices, MSR, and concessions. The related origination fees are no longer deferred but recognized in origination
15
FIRST HORIZON NATIONAL CORPORATION
income upon closing of a loan. These changes are primarily reflected in comparisons between 2008 and 2007 as origination activity and secondary market transactions were significantly reduced in 2009.
During 2009, noninterest income consisted primarily of fees from mortgage servicing, changes in the fair value of MSR net of hedge gains or losses, fair value adjustments to the remaining warehouse, and origination income through the regional banking footprint. In periods prior to the divestiture, mortgage banking
fee income also included origination through national channels and sales of mortgage loans into the secondary market. Noninterest income decreased to $235.5 million in 2009 compared to $518.0 million in 2008. A $199.3 million decline in origination income and $85.1 million decline in servicing income were the
primary contributors to year over year reduction in mortgage banking noninterest income.
In 2009, origination income was $24.3 million compared with $223.6 million in 2008 reflecting the 2008 divestiture. Mortgage origination income through the regional banking footprint generated $24.3 million in revenues and negative fair value adjustments to the mortgage warehouse were $6.4 million during 2009.
Origination income in 2008 was driven by considerably higher volumes given the national distribution channel and delivery of $19.9 billion of mortgage loans into the secondary market. Additionally, FHN recognized $15.5 million negative adjustment to gain on sale as a result of revised cash flow expectations for
mortgage origination activity.
Net servicing income declined $85.1 million to $206.9 million in 2009 reflecting a substantial decline in the UPB of the servicing portfolio and lower net hedging gains from 2008. The average UPB of mortgage loans serviced through Mortgage Banking during 2009 declined to $45.1 billion from $86.0 billion during
2008. FHN sold servicing rights on approximately $13 billion in UPB during 2009 and executed multiple MSR sales in 2008, including $19.1 billion sold in third quarter 2008 in conjunction with the sale of certain mortgage banking operations. The contracting servicing portfolio resulted in a $111.6 million decline
in servicing fees to $120.3 million in 2009. A slowdown in runoff of the servicing portfolio positively affected servicing income in 2009 by $45.3 million which somewhat mitigated an $18.8 million decline in positive net hedging results.
In 2008, other income included FHNs share of earnings from nonconsolidated subsidiaries accounted for under the equity method, which provided ancillary activities to mortgage banking, and fees from retail construction lending. FHNs interests in these unconsolidated subsidiaries were sold in third quarter 2008.
In fourth quarter 2008, other mortgage banking income was negatively impacted by the recognition of a $6.5 million liability for minimum fee guarantees on prior servicing sales.
Deposit Transactions and Cash Management
Deposit transactions include services related to retail and commercial deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (Automated Clearing House and Electronic Data Interchange), account reconciliation services,
cash vault services, lockbox processing, and information reporting to large corporate clients. Noninterest income from deposit transactions and cash management fees decreased to $163.8 million in 2009 from $179.0 million in 2008, reflecting a $14.9 million decline in NSF fees on retail accounts. The decline in
NSF fee income is attributable to overall lower consumer transaction volume during 2009 when compared with 2008.
Trust Services and Investment Management
Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services and are primarily influenced by equity and fixed income market activity. Noninterest income from trust services and investment management was $29.5 million in 2009
compared to $33.8 million in 2008. The $4.3 million decrease is due to market-related declines in trust asset values that primarily occurred during the first half of 2009.
Brokerage Management Fees and Commissions
Brokerage management fees and commissions include fees for portfolio management, trade commissions, and annuity and mutual fund sales. In 2009, brokerage and management fees were $26.9 million compared to $32.2 million in 2008. The decline is partially due to overall market conditions and also a shift in
customer investment
16
FIRST HORIZON NATIONAL CORPORATION
mix to lower-risk, less profitable, products. Additionally, in 2009, FHN rolled-out a more fee-based approach to asset management that had a one-time negative effect on 2009 earnings.
Insurance Commissions
Insurance commissions are derived from the sale of insurance products, including acting as an independent agent to provide commercial and personal property and casualty, life, long-term care, and disability insurance. Noninterest income from insurance commissions decreased to $25.2 million in 2009 from $29.1
million in 2008 primarily due to reduced sales volume because of low demand and a decline in mortgage related insurance sales.
Gains/(Losses) on Divestitures
In 2009, losses from divestitures were $9.2 million and were related to the sales of FHNs Atlanta insurance business and the Louisville First Express Remittance Processing (lockbox service) location. Losses from divestitures in 2008 were $19.0 million and were related to the sale of mortgage banking operations
and certain First Horizon Bank branches. See the discussion of Restructuring, Repositioning, and Efficiency Initiatives and Note 2 Acquisitions/Divestitures for further details.
Securities Gains/(Losses)
Net securities losses in 2009 were $1.2 million and primarily related to losses on venture capital investments and a $.5 million cost method investment impairment. Net securities gains in 2008 were $66.1 million and were primarily related to Visas redemption of its Class B shares held by FHN in connection with
Visa Inc.s IPO that resulted in a gain of $65.9 million.
All Other Income and Commissions
All other income includes bankcard fees, revenue from bank-owned life insurance, remittance processing income, revenue related to deferred compensation plans (which are principally offset by a related item in noninterest expense), other service charges, gains from the repurchase of bank debt, gains/losses from
loan sales and securitizations, and various other fees. See Table 4 for additional details.
All other income and commissions increased slightly to $130.9 million in 2009 from $127.6 million in 2008. Other income was positively affected by a $30.6 million increase in deferred compensation income (which is more than offset by a $39.2 million increase in deferred compensation expense). Gains from the
repurchase of bank debt decreased by $17.4 million and income from bank-owned life insurance declined by $5.4 million due to a lower earnings rate. ATM interchange fees were up slightly as a result of a promotion by FHNs ATM network provider. All other components decreased slightly. Charges to reflect for
repurchase obligations from prior home equity lines of credit (HELOC) and second lien loan sales were $22.0 million in 2009 compared with $15.5 million in 2008 and are reflected in the all other income line in Table 4.
NONINTEREST EXPENSE
Total noninterest expense for 2009 decreased 3 percent to $1.6 billion during 2009. Table 7 provides detail by segment. Table 8 provides detail by category for the past six years with growth rates. Costs from restructuring, repositioning, and efficiency initiatives reflected in various categories of noninterest expense
declined $31.6 million to $27.7 million in 2009.
Employee compensation, incentives, and benefits (personnel expense), the largest component of noninterest expense, decreased $151.4 million from $929.0 million in 2008. The significant decline in personnel expense primarily reflects the 2008 divestiture of certain mortgage banking operations. Severance related
to FHNs ongoing restructuring, repositioning, and efficiency initiatives also decreased from 2008. Personnel expense increased within Capital Markets as a result of higher fixed income revenues during 2009. Included in personnel expense is the net periodic benefit cost for FHNs pension plan of $8.6 million in
2009 compared to $1.7 million in 2008. Based on current conditions, FHN anticipates that the net periodic benefit cost for the Pension Plan will increase by $5.7 million in 2010 primarily driven by declines in discount rate and anticipated earnings rate on plan assets.
17
FIRST HORIZON NATIONAL CORPORATION
The mortgage banking foreclosure and repurchase provision increased to $126.5 million in 2009 from $11.5 million in 2008 reflecting an increase in repurchase requests on loans that were previously sold or securitized through FHNs legacy mortgage business. See Critical Accounting Policies and Off Balance
Sheet Arrangements for additional discussion surrounding FHNs estimate of these obligations. Additionally, foreclosure losses and FDIC premiums, including the second quarter 2009 special assessment, increased $44.7 million and $31.6 million, respectively. Foreclosure losses reflected $34.9 million in negative fair
value adjustments and $16.8 million from disposition losses. FHN incurred an additional $2.3 million goodwill impairment related to goodwill allocated to certain assets that were excluded from the sale of the Atlanta insurance business. There were no goodwill impairments in 2008. Generally, all other expense
categories decreased primarily from the divestiture of certain mortgage banking operations but also a result of efficiency initiatives and focus on core businesses.
Total other noninterest expense increased $10.2 million to $184.3 million in 2009 despite overall declines in most expense categories from the divestiture of certain mortgage banking operations and a company-wide focus on efficiencies. All other noninterest expense increased $27.2 million. Charges to increase
reinsurance reserves due to increased estimated defaults on insured mortgages were $25.6 million compared to $16.5 million in the prior year. Both periods included reversals of the Visa contingent liability as FHN reversed only $7.0 million in 2009 compared with $30.0 million in 2008. Operations services to
support FHNs regional banking mortgage businesses increased $15.4 million during 2009.
Table 7 - Noninterest Expense Composition
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Regional Banking |
|
|
$ |
|
661,313 |
|
|
|
$ |
|
609,933 |
|
|
|
$ |
|
611,562 |
|
Capital Markets |
|
|
|
416,204 |
|
|
|
|
372,705 |
|
|
|
|
272,496 |
|
National Specialty Lending |
|
|
|
134,237 |
|
|
|
|
106,964 |
|
|
|
|
138,229 |
|
Mortgage Banking |
|
|
|
238,648 |
|
|
|
|
429,255 |
|
|
|
|
503,898 |
|
Corporate |
|
|
|
100,131 |
|
|
|
|
75,485 |
|
|
|
|
242,177 |
|
|
Total noninterest expense |
|
|
$ |
|
1,550,533 |
|
|
|
$ |
|
1,594,342 |
|
|
|
$ |
|
1,768,362 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
18
FIRST HORIZON NATIONAL CORPORATION
Table 8 - Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Compound Annual Growth Rates (%) |
|
09/08 |
|
09/04 |
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation, incentives, and benefits |
|
|
$ |
|
777,581 |
|
|
|
$ |
|
928,982 |
|
|
|
$ |
|
932,443 |
|
|
|
$ |
|
984,989 |
|
|
|
$ |
|
949,107 |
|
|
|
$ |
|
862,321 |
|
|
|
|
16.3 |
- |
|
|
|
|
2.0 |
- |
|
Mortgage banking foreclosure and repurchase provision |
|
|
|
126,460 |
|
|
|
|
11,531 |
|
|
|
|
8,467 |
|
|
|
|
1,641 |
|
|
|
|
2,762 |
|
|
|
|
3,754 |
|
|
|
|
NM |
|
|
|
|
102.1 |
+ |
|
Foreclosed real estate |
|
|
|
66,197 |
|
|
|
|
21,471 |
|
|
|
|
7,581 |
|
|
|
|
2,743 |
|
|
|
|
1,171 |
|
|
|
|
2,080 |
|
|
|
|
NM |
|
|
|
|
99.8 |
+ |
|
Legal and professional fees |
|
|
|
66,121 |
|
|
|
|
62,173 |
|
|
|
|
52,879 |
|
|
|
|
41,216 |
|
|
|
|
43,302 |
|
|
|
|
36,403 |
|
|
|
|
6.4 |
+ |
|
|
|
|
12.7 |
+ |
|
Occupancy |
|
|
|
65,402 |
|
|
|
|
103,573 |
|
|
|
|
129,626 |
|
|
|
|
115,041 |
|
|
|
|
102,484 |
|
|
|
|
86,332 |
|
|
|
|
36.9 |
- |
|
|
|
|
5.4 |
- |
|
Operations services |
|
|
|
62,485 |
|
|
|
|
72,602 |
|
|
|
|
69,460 |
|
|
|
|
65,685 |
|
|
|
|
68,664 |
|
|
|
|
56,833 |
|
|
|
|
13.9 |
- |
|
|
|
|
1.9 |
+ |
|
Deposit insurance premiums |
|
|
|
46,272 |
|
|
|
|
14,664 |
|
|
|
|
3,327 |
|
|
|
|
3,198 |
|
|
|
|
3,012 |
|
|
|
|
3,024 |
|
|
|
|
NM |
|
|
|
|
72.6 |
+ |
|
Contract employment |
|
|
|
36,217 |
|
|
|
|
33,515 |
|
|
|
|
21,510 |
|
|
|
|
27,365 |
|
|
|
|
30,305 |
|
|
|
|
23,678 |
|
|
|
|
8.1 |
+ |
|
|
|
|
8.9 |
+ |
|
Equipment rentals, depreciation, and maintenance |
|
|
|
34,305 |
|
|
|
|
56,744 |
|
|
|
|
72,402 |
|
|
|
|
73,249 |
|
|
|
|
73,835 |
|
|
|
|
69,922 |
|
|
|
|
39.5 |
- |
|
|
|
|
13.3 |
- |
|
Communications and courier |
|
|
|
26,960 |
|
|
|
|
38,183 |
|
|
|
|
41,965 |
|
|
|
|
47,119 |
|
|
|
|
47,362 |
|
|
|
|
40,740 |
|
|
|
|
29.4 |
- |
|
|
|
|
7.9 |
- |
|
Computer software |
|
|
|
26,883 |
|
|
|
|
30,318 |
|
|
|
|
53,860 |
|
|
|
|
34,255 |
|
|
|
|
28,503 |
|
|
|
|
26,701 |
|
|
|
|
11.3 |
- |
|
|
|
|
* |
|
Miscellaneous loan costs |
|
|
|
23,050 |
|
|
|
|
38,221 |
|
|
|
|
12,783 |
|
|
|
|
12,095 |
|
|
|
|
7,969 |
|
|
|
|
18,623 |
|
|
|
|
39.7 |
- |
|
|
|
|
4.4 |
+ |
|
Amortization of intangible assets |
|
|
|
6,017 |
|
|
|
|
8,229 |
|
|
|
|
10,489 |
|
|
|
|
10,362 |
|
|
|
|
9,368 |
|
|
|
|
5,294 |
|
|
|
|
26.9 |
- |
|
|
|
|
2.6 |
+ |
|
Goodwill impairment |
|
|
|
2,294 |
|
|
|
|
- |
|
|
|
|
84,084 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
NM |
|
|
|
|
NM |
|
All other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and public relations |
|
|
|
22,074 |
|
|
|
|
32,738 |
|
|
|
|
41,840 |
|
|
|
|
46,737 |
|
|
|
|
46,280 |
|
|
|
|
39,597 |
|
|
|
|
32.6 |
- |
|
|
|
|
11.0 |
- |
|
Low income housing expense |
|
|
|
22,000 |
|
|
|
|
18,734 |
|
|
|
|
20,922 |
|
|
|
|
17,027 |
|
|
|
|
12,987 |
|
|
|
|
13,662 |
|
|
|
|
17.4 |
+ |
|
|
|
|
10.0 |
+ |
|
Other insurance and taxes |
|
|
|
12,388 |
|
|
|
|
8,705 |
|
|
|
|
10,372 |
|
|
|
|
9,938 |
|
|
|
|
10,118 |
|
|
|
|
8,678 |
|
|
|
|
42.3 |
+ |
|
|
|
|
7.4 |
+ |
|
Travel and entertainment |
|
|
|
9,547 |
|
|
|
|
15,137 |
|
|
|
|
23,295 |
|
|
|
|
29,026 |
|
|
|
|
28,342 |
|
|
|
|
27,905 |
|
|
|
|
36.9 |
- |
|
|
|
|
19.3 |
- |
|
Customer relations |
|
|
|
7,819 |
|
|
|
|
8,872 |
|
|
|
|
9,775 |
|
|
|
|
8,643 |
|
|
|
|
9,841 |
|
|
|
|
9,167 |
|
|
|
|
11.9 |
- |
|
|
|
|
3.1 |
- |
|
Loan insurance expense |
|
|
|
7,811 |
|
|
|
|
5,270 |
|
|
|
|
4,610 |
|
|
|
|
6,577 |
|
|
|
|
7,970 |
|
|
|
|
8,070 |
|
|
|
|
48.2 |
+ |
|
|
|
|
* |
|
Employee training and dues |
|
|
|
5,327 |
|
|
|
|
6,198 |
|
|
|
|
6,569 |
|
|
|
|
6,750 |
|
|
|
|
6,103 |
|
|
|
|
5,857 |
|
|
|
|
14.1 |
- |
|
|
|
|
1.9 |
- |
|
Fed service fees |
|
|
|
5,078 |
|
|
|
|
7,053 |
|
|
|
|
6,047 |
|
|
|
|
6,543 |
|
|
|
|
7,568 |
|
|
|
|
8,838 |
|
|
|
|
28.0 |
- |
|
|
|
|
10.5 |
- |
|
Bank examinations costs |
|
|
|
4,884 |
|
|
|
|
4,144 |
|
|
|
|
4,504 |
|
|
|
|
4,367 |
|
|
|
|
3,958 |
|
|
|
|
3,128 |
|
|
|
|
17.9 |
+ |
|
|
|
|
9.3 |
+ |
|
Supplies |
|
|
|
4,661 |
|
|
|
|
10,586 |
|
|
|
|
13,599 |
|
|
|
|
14,645 |
|
|
|
|
16,815 |
|
|
|
|
16,728 |
|
|
|
|
56.0 |
- |
|
|
|
|
22.6 |
- |
|
Complimentary check expense |
|
|
|
3,529 |
|
|
|
|
4,776 |
|
|
|
|
5,058 |
|
|
|
|
5,371 |
|
|
|
|
4,621 |
|
|
|
|
3,482 |
|
|
|
|
26.1 |
- |
|
|
|
|
* |
|
Other |
|
|
|
79,171 |
|
|
|
|
51,923 |
|
|
|
|
120,895 |
|
|
|
|
90,046 |
|
|
|
|
35,159 |
|
|
|
|
27,195 |
|
|
|
|
52.5 |
+ |
|
|
|
|
23.8 |
+ |
|
|
|
|
Total all other expense |
|
|
|
184,289 |
|
|
|
|
174,136 |
|
|
|
|
267,486 |
|
|
|
|
245,670 |
|
|
|
|
189,762 |
|
|
|
|
172,307 |
|
|
|
|
5.8 |
+ |
|
|
|
|
1.4 |
+ |
|
|
|
|
Total noninterest expense |
|
|
$ |
|
1,550,533 |
|
|
|
$ |
|
1,594,342 |
|
|
|
$ |
|
1,768,362 |
|
|
|
$ |
|
1,664,628 |
|
|
|
$ |
|
1,557,606 |
|
|
|
$ |
|
1,408,012 |
|
|
|
|
2.7 |
- |
|
|
|
|
1.9 |
+ |
|
|
|
|
* Amount is less than one percent.
NM not meaningful
Certain previously reported amounts have been reclassified to agree with current presentation.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the allowance for loan and lease losses (ALLL) at a sufficient level reflecting managements estimate of probable incurred losses in the loan portfolio. Analytical models based on loss experience subject
to adjustment to reflect current events, trends, and conditions (including economic considerations and trends) are used by management to determine the amount of provision to be recognized and to assess the adequacy of the loan loss allowance. In response to economic conditions beginning in 2007, FHN
conducted focused portfolio management activities to identify problem credits and to reach appropriate provisioning and reserve levels. The provision for loan losses decreased 19 percent to $.9 billion in 2009 from $1.1 billion in 2008. While all portfolios remain affected by the weakened real estate market and the
poor economic conditions that continued into 2009, provision expense improved from 2008 primarily due to reduced exposure in the national construction portfolios (one-time-close retail real estate construction loans extended to consumers, loans to homebuilders, including condominium construction loans, and
loans to finance income-producing real estate). See Credit Risk Management and Allowance for Loan Losses and Charge-offs for further details.
Going forward, the level of provision for loan losses should decrease consistent with the expectation that net charge-offs and the allowance for losses will decrease if current economic trends continue. During 2010, the
19
FIRST HORIZON NATIONAL CORPORATION
national construction portfolios will substantially diminish and home equity losses are expected to decrease while commercial real estate and portions of the commercial and industrial portfolio could remain stressed.
INCOME TAXES
The effective tax rate for 2009 was 41.6 percent reflecting tax benefits due to the reported loss in 2009. Since pre-tax income is the most important component in determining the effective tax rate, the comparison of the tax rate itself from year to year, by itself, will not provide meaningful information unless pre-tax
income is fairly consistent from year to year. During 2009, there were several items which positively affected the effective tax rate. Tax credits reduced taxes by $22.3 million and non-taxable gains resulting from the increase in the cash surrender value of life insurance reduced taxes by $8.6 million. These
permanent tax benefits were offset by a one-time increase in tax expense of $8.4 million from the surrender of life insurance policies and by a $3.2 million increase in tax expense from the impairment charge for goodwill.
A deferred tax asset (DTA) or deferred tax liability (DTL) is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to
future years, to these temporary differences. In order to support the recognition of the DTA, FHNs management must believe that the realization of the DTA is more likely than not.
FHN evaluates the likelihood of realization of the $414 million net DTA based on both positive and negative evidence available at the time. FHNs three-year cumulative loss position at December 31, 2009, is significant negative evidence in determining whether the realizability of the DTA is more likely than not.
However, FHN believes that the negative evidence of the three-year cumulative loss is overcome by sufficient positive evidence that the DTA will ultimately be realized. The positive evidence includes several different factors. First, a significant amount of the cumulative losses occurred in businesses that FHN has
exited or is in the process of exiting. Secondly, FHN forecasts substantially more taxable income in the carryforward period, exclusive of potential tax planning strategies, even under very conservative assumptions. Additionally, FHN has sufficient carryback positions, reversing DTL, and potential tax planning
strategies to fully realize its DTA. FHN believes that it will realize the net DTA within a significantly shorter period of time than the twenty year carryforward period allowed under the tax rules. Based on current analysis, FHN believes that its ability to realize the recognized $414 million net DTA is more likely than
not. This assertion could change should FHN experience greater losses in the near-future than management currently anticipates.
The total balance of unrecognized tax benefits on December 31, 2009, was $30.0 million compared with $31.1 million as of the end of 2008. On December 31, 2009, there were no tax positions included in the balance of unrecognized tax benefits for which the ultimate deductibility is highly certain but for which
there is uncertainty about the timing of such deductibility.
FHNs ASC 740 policy is to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. Interest accrued as of December 31, 2009 was approximately $7.6 million. The total amount of interest and penalties recognized in the Consolidated Statements of Income
during 2009 was $1.6 million. See also Note 16 Income Taxes for additional information.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files
consolidated, combined, or separate returns. With few exceptions, FHN is no longer subject to U.S. federal or state and local tax examinations by tax authorities for years before 2006. The Internal Revenue Service (IRS) is currently examining tax years 2006 through 2008. All proposed adjustments with respect to
examinations of federal returns filed for 2005 and prior years have been settled.
DISCONTINUED OPERATIONS
The results of operations, net of tax, for FTN ECM are classified as discontinued operations on the Consolidated Statements of Income for all periods presented. Consistent with historical procedures, the component of
20
FIRST HORIZON NATIONAL CORPORATION
discontinued operations that meets the definition of restructuring charges is reflected in the Corporate segment while those amounts related to standard operations are reflected in the Capital Markets segment. In 2009, a $12.8 million loss was included in discontinued operations compared with a $3.5 million loss in
2008. The loss in 2009 includes a $14.3 million pre-tax ($9 million after-tax) goodwill impairment that was triggered by the definitive agreement reached in third quarter 2009 to sell FTN ECM. As previously noted, the contracted sale failed to close, and FHN exited this business in first quarter 2010. In 2008, loss
from discontinued operations was favorably impacted by a $.9 million earn-out associated with the merchant processing divestiture that occurred in 2006.
STATEMENT OF CONDITION REVIEW 2009 COMPARED TO 2008
Total assets were $26.1 billion on December 31, 2009, compared to $31.0 billion on December 31, 2008. Average assets decreased to $28.1 billion in 2009 from $34.4 billion in 2008 due to continued efforts to reduce balance sheet risk.
EARNING ASSETS
Earning assets consist of loans, loans held for sale, investment securities, trading securities and other earning assets. Earning assets averaged $25.4 billion and $30.4 billion for 2009 and 2008, respectively. A more detailed discussion of the major line items follows.
Loans
Average loans decreased 10 percent to $19.6 billion from $21.7 billion in 2008 as the wind-down of the national construction portfolios continued and FHN experienced soft loan demand during 2009. The loan portfolio represented 77 percent of average earning assets in 2009 and 71 percent in 2008. Additional
loan information is provided in Table 9 and Note 4 Loans. Additionally, see the Credit Risk Management section for a description of each loan portfolio.
21
FIRST HORIZON NATIONAL CORPORATION
Table 9 - Average Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
Percent of Total |
|
2009 Growth Rate |
|
2008 |
|
Percent of Total |
|
2008 Growth Rate |
|
2007 |
|
Percent of Total |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial (a) |
|
|
$ |
|
7,336.0 |
|
|
|
|
37 |
% |
|
|
|
|
* |
|
|
|
$ |
|
7,346.4 |
|
|
|
|
34 |
% |
|
|
|
|
3.3% |
|
|
|
$ |
|
7,109.9 |
|
|
|
|
32 |
% |
|
Real estate commercial (b) |
|
|
|
1,521.8 |
|
|
|
|
7 |
|
|
|
|
6.3% |
|
|
|
|
1,431.8 |
|
|
|
|
6 |
|
|
|
|
12.6 |
|
|
|
|
1,271.4 |
|
|
|
|
6 |
|
Real estate construction (c) |
|
|
|
1,362.3 |
|
|
|
|
7 |
|
|
|
|
(41.2) |
|
|
|
|
2,317.3 |
|
|
|
|
11 |
|
|
|
|
(19.1) |
|
|
|
|
2,865.8 |
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
|
10,220.1 |
|
|
|
|
51 |
|
|
|
|
(7.9) |
|
|
|
|
11,095.5 |
|
|
|
|
51 |
|
|
|
|
(1.3) |
|
|
|
|
11,247.1 |
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential (d) |
|
|
|
7,784.7 |
|
|
|
|
40 |
|
|
|
|
(2.7) |
|
|
|
|
7,998.9 |
|
|
|
|
37 |
|
|
|
|
3.3 |
|
|
|
|
7,741.2 |
|
|
|
|
35 |
|
Real estate construction (e) |
|
|
|
573.3 |
|
|
|
|
3 |
|
|
|
|
(61.8) |
|
|
|
|
1,501.7 |
|
|
|
|
7 |
|
|
|
|
(28.4) |
|
|
|
|
2,095.9 |
|
|
|
|
9 |
|
Other retail |
|
|
|
129.5 |
|
|
|
|
1 |
|
|
|
|
(6.9) |
|
|
|
|
139.1 |
|
|
|
|
1 |
|
|
|
|
(6.8) |
|
|
|
|
149.3 |
|
|
|
|
1 |
|
Credit card receivables |
|
|
|
186.2 |
|
|
|
|
1 |
|
|
|
|
(3.6) |
|
|
|
|
193.2 |
|
|
|
|
1 |
|
|
|
|
(1.6) |
|
|
|
|
196.4 |
|
|
|
|
1 |
|
Real estate loans pledged against other collateralized borrowings (f) |
|
|
|
685.5 |
|
|
|
|
4 |
|
|
|
|
(6.4) |
|
|
|
|
732.3 |
|
|
|
|
3 |
|
|
|
|
8.2 |
|
|
|
|
676.8 |
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Total retail |
|
|
|
9,359.2 |
|
|
|
|
49 |
|
|
|
|
(11.4) |
|
|
|
|
10,565.2 |
|
|
|
|
49 |
|
|
|
|
(2.7) |
|
|
|
|
10,859.6 |
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned |
|
|
$ |
|
19,579.3 |
|
|
|
|
100 |
% |
|
|
|
|
(9.6)% |
|
|
|
$ |
|
21,660.7 |
|
|
|
|
100 |
% |
|
|
|
|
(2.0)% |
|
|
|
$ |
|
22,106.7 |
|
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
Amount less than one percent. |
|
(a) |
|
|
|
Includes loans to bank holding companies and trust preferred loans. |
|
(b) |
|
|
|
Includes nonconstruction income property loans and land loans not involving development. |
|
(c) |
|
|
|
Includes homebuilder, condominium, income property construction, and land development loans. |
|
(d) |
|
|
|
Includes primarily home equity loans and lines of credit (in 2009, 2008, and 2007 HELOC averages were $3.7 billion, $3.7 billion, and $3.9 billion, respectively). |
|
(e) |
|
|
|
One-time close product. |
|
(f) |
|
|
|
Includes on-balance sheet securitizations of home equity lines.
|
Commercial, financial, and industrial (C&I) loans comprised 72 percent of total commercial loans in 2009 compared to 66 percent in 2008. C&I loans were relatively flat from 2008 as loan demand was soft during 2009. Commercial real estate construction loans declined $1.0 billion as result of continued efforts to
wind down the national component of this portfolio and also due to elevated charge-offs. The average loan balance of commercial real estate loans increased from 2008 as market conditions impacted the availability of other third party financing and borrower payoffs. Contractual maturity information for commercial
loans is provided in Table 10.
Residential real estate loans (inclusive of real estate loans pledged against other collateralized borrowings) comprised 91 percent of the retail loan portfolio in 2009 and 83 percent in 2008. This category of loans includes first and second lien home equity lines and loans and residential first mortgages. This portfolio
decreased 3 percent or $261.0 million as a result of reduced loan demand and efforts to reduce exposure from loans originated through national channels. The one time close (OTC) portfolio, which is reflected in the retail real estate construction line above, comprised 6 percent of the retail portfolio in 2009
compared to 14 percent in 2008 and contracted by $.9 billion since 2008. As of December 31, 2009, the period-end balance of this portfolio was only $.2 billion reflecting FHNs efforts to wind down this portfolio. OTC balances were reduced by refinance by others, movement to the permanent portfolio (if an
individual loan qualified for such a move), and charge-offs.
The national home equity portfolio is expected to slowly contract during 2010 and the remaining balances of the national construction portfolios should be nominal by the end of 2010. Given the contraction of the national specialty portfolios, it is likely that loan balances will remain flat during 2010 as FHN projects
modest new loan growth in the Regional Banks and Capital Markets portfolios due to soft loan demand and a slow economic recovery.
22
FIRST HORIZON NATIONAL CORPORATION
Table 10 - Contractual Maturities of Commercial Loans on December 31, 2009
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Within 1 Year |
|
After 1 Year Within 5 Years |
|
After 5 Years |
|
Total |
|
Commercial, financial and industrial |
|
|
$ |
|
3,550,782 |
|
|
|
$ |
|
2,531,673 |
|
|
|
$ |
|
1,076,915 |
|
|
|
$ |
|
7,159,370 |
|
Real estate commercial |
|
|
|
603,577 |
|
|
|
|
742,630 |
|
|
|
|
133,681 |
|
|
|
|
1,479,888 |
|
Real estate construction |
|
|
|
592,485 |
|
|
|
|
331,990 |
|
|
|
|
- |
|
|
|
|
924,475 |
|
|
Total commercial loans, net of unearned income |
|
|
$ |
|
4,746,844 |
|
|
|
$ |
|
3,606,293 |
|
|
|
$ |
|
1,210,596 |
|
|
|
$ |
|
9,563,733 |
|
|
For maturities over one year: |
|
|
|
|
|
|
|
|
Interest rates floating |
|
|
|
|
$ |
|
2,559,103 |
|
|
|
$ |
|
608,561 |
|
|
|
$ |
|
3,167,664 |
|
Interest rates fixed |
|
|
|
|
|
1,047,190 |
|
|
|
|
602,035 |
|
|
|
|
1,649,225 |
|
|
Total maturities over one year |
|
|
|
|
$ |
|
3,606,293 |
|
|
|
$ |
|
1,210,596 |
|
|
|
$ |
|
4,816,889 |
|
|
Investment Securities
The investment portfolio of FHN consists principally of debt securities, principally government-sponsored agency-issued asset backed securities, used as a source of income, liquidity, and collateral for repurchase agreements or public fund deposits. Additionally, the investment portfolio is used as a tool to manage
risk from movements in interest rates. As of December 31, 2009, all securities in the portfolio were classified as available-for-sale (AFS). Table 11 shows information pertaining to the composition, yields, and contractual maturities of the investment securities portfolio.
Investment securities averaged $2.9 billion in 2009 compared to $3.0 billion in 2008 and represented 11 percent of earning assets in both 2009 and 2008.
AFS securities consist of government agency issued mortgage-backed securities (MBS), government agency issued collateralized mortgage obligations (CMO), U.S. Treasuries, U.S. government agencies, municipal bonds, and equity securities and were $2.7 billion on December 31, 2009. Additionally, as of the
end of the year, FHN held $125.5 million and $66.3 million investments in FHLB and FRB stock, respectively. On December 31, 2009, these securities had $106.3 million of net unrealized gains that resulted in an increase in book equity of $64.9 million, net of $41.4 million of deferred income taxes. See Note 3
Investment Securities for additional detail. On December 31, 2008, AFS securities totaled $3.1 billion and had $69.2 million of net unrealized gains that resulted in an increase in book equity of $42.8 million, net of $26.4 million of deferred income taxes.
Table 11 - Contractual Maturities of Investment Securities on December 31, 2009 (Amortized Cost)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Within 1 Year |
|
After 1 Year Within 5 Years |
|
After 5 Years Within 10 Years |
|
After 10 Years |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Securities available for sale (AFS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency issued MBS and CMO (a) |
|
|
$ |
|
- |
|
|
|
|
- |
% |
|
|
|
$ |
|
- |
|
|
|
|
- |
% |
|
|
|
$ |
|
92,332 |
|
|
|
|
5.45 |
% |
|
|
|
$ |
|
1,997,660 |
|
|
|
|
5.21 |
% |
|
U.S. Treasuries |
|
|
|
39,987 |
|
|
|
|
2.18 |
|
|
|
|
7,996 |
|
|
|
|
0.92 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Other U.S. government agencies |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
19,355 |
|
|
|
|
4.49 |
|
|
|
|
92,494 |
|
|
|
|
5.42 |
|
|
|
|
- |
|
|
|
|
- |
|
States and municipalities (b) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
3,240 |
|
|
|
|
1.65 |
|
|
|
|
41,160 |
|
|
|
|
0.89 |
|
Other |
|
|
|
155 |
|
|
|
|
4.20 |
|
|
|
|
511 |
|
|
|
|
4.83 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
293,318 |
(c) |
|
|
|
|
3.15 |
|
|
Total |
|
|
$ |
|
40,142 |
|
|
|
|
2.19 |
% |
|
|
|
$ |
|
27,862 |
|
|
|
|
3.47 |
% |
|
|
|
$ |
|
188,066 |
|
|
|
|
5.37 |
% |
|
|
|
$ |
|
2,332,138 |
|
|
|
|
4.87 |
% |
|
|
|
(a) |
|
|
|
Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early paydowns, have an estimated average life of 2.8 years. |
|
(b) |
|
|
|
Weighted average yields on tax-exempt obligations have been computed by adjusting allowable tax-exempt income to a fully taxable equivalent basis. |
|
(c) |
|
|
|
Represents equity securities with no stated maturity.
|
23
FIRST HORIZON NATIONAL CORPORATION
Loans Held for Sale/Loans Held for Sale Divestiture
Loans held for sale consists of the mortgage warehouse, student, small business, and home equity loans. While considerably smaller when compared with prior periods, the mortgage warehouse still accounts for the majority of loans held for sale during 2009. Loans held for sale represented only 2 percent of total
earning assets in 2009 compared with 9 percent in 2008 and averaged $.5 billion, a decrease of 78 percent, or $1.9 billion from 2008. This decline is due to a much smaller mortgage warehouse as the national mortgage origination platform was sold in third quarter 2008 and the remaining warehouse has
significantly contracted. During 2008, first and second lien mortgages and small issuer trust preferred loans were moved to the loan portfolio. On December 31, 2009 and 2008, there were no loans classified as held for sale - divestiture. However, during 2008, loans held for sale divestiture averaged $.1 billion as
FHN completed the final First Horizon Bank branch sale in second quarter 2008. It is expected that FHNs balance of loans held for sale will remain flat or slightly increase during 2010 as the amount of repurchased loans could increase the size of the mortgage warehouse and secondary market demand will likely
remain soft.
Trading Securities/Other Earning Assets
Average trading securities decreased 41 percent to $1.1 billion in 2009 from $1.9 billion in 2008 primarily as a result of capital markets trading inventory management efforts and also FHNs reduction of retained interests from prior securitizations during 2009. Other earning assets, which are comprised of
securities purchased under agreements to resell, federal funds sold, and interest-bearing deposits with the Federal Reserve and other financial institutions, decreased slightly by 4 percent, and averaged $1.3 billion in both periods. Interest-bearing cash increased $.5 billion as FHN allowed excess deposits to remain
with the Federal Reserve as Fed deposits converted to interest-bearing accounts in the latter half of 2008. Average federal funds sold decreased primarily due to reduced short-term lending to correspondent banks and securities repurchase agreements declined consistent with the decline in capital markets trading
portfolio.
Core Deposits
During 2009, core deposits increased 2 percent, or $.3 billion, and averaged $13.2 billion despite increased deposit competition. Noninterest-bearing core deposits increased $.2 billion, or 5 percent, and averaged $4.5 billion in 2009 reflecting FHNs ongoing efforts to grow core deposits. Interest-bearing core
deposits increased 1 percent to an average balance of $8.7 billion in 2009. In 2009 and 2008, the sales of mortgage servicing rights resulted in a decrease in custodial deposits as these core deposits were transferred when the related servicing rights were sold.
Short-Term Funds/Long-Term Debt
Short-term funds (certificates of deposit greater than $100,000, federal funds purchased, securities sold under agreements to repurchase, trading liabilities, commercial paper, and other short-term borrowings), averaged $7.1 billion during 2009, down 37 percent from $11.3 billion in 2008. On December 31, 2009,
short-term funds were $4.5 billion compared with $7.8 billion at the end of 2008. FHNs contracting balance sheet and core deposit growth reduced reliance on purchased short-term funds. Average federal funds purchased decreased $.5 billion during 2009 to $1.6 billion as lending between financial institutions
has been reduced due to tightened credit markets and also because of the conversion of Fed deposits to interest-bearing accounts. However, as liquidity between financial institutions increased during 2009, FHN increased its utilization of federal funds purchased resulting in a period-end increase of $1.1 billion
from 2008. Additionally, the FDICs increased deposit coverage, combined with the low rate environment, resulted in a $.4 billion decline in average securities sold under repurchase agreements. During 2009, FHN continued to utilize the FRBs Term Auction Facility as these borrowings averaged $2.1 billion for both
periods. On December 31, 2009, TAF borrowings were $.4 billion compared with $4.0 billion in 2008 as this program is set to expire in 2010. Purchased CDs (generally, CDs greater than $100,000) declined by $.6 billion as FHN focused on lower cost, more stable funding sources. Short-term purchased funds
accounted for 30 percent of FHNs funding (core deposits plus purchased funds and term borrowings) in 2009, and 37 percent in 2008. See Note 9 Short-Term Borrowings for additional information.
Long-term debt includes senior and subordinated borrowings and advances with original maturities greater than one year. Average long-term debt decreased 43 percent, or $2.6 billion, and averaged $3.5 billion in 2009. As of
24
FIRST HORIZON NATIONAL CORPORATION
December 31, 2009, long-term debt was $2.9 billion, a decrease of 40 percent, or $1.9 billion from 2008 year-end. The decrease was the result of bank note maturities and repurchases as funding needs decreased due to asset contraction. During 2009, FHN repurchased $.2 billion in bank notes and $1.6 billion
matured. See Note 10 Long-Term Debt for additional information.
ADOPTION OF ACCOUNTING UPDATES 2009
Effective January 1, 2009, FHN adopted the provisions of the Codification update to ASC 805 and ASC 810. ASC 805, as amended, requires that an acquirer recognize the assets acquired and liabilities assumed in a business combination, as well as any noncontrolling interest in the acquiree, at their fair values as
of the acquisition date, with limited exceptions. Additionally, the updated provisions of ASC 805 provide that an acquirer cannot specify an effective date for a business combination that is separate from the acquisition date. ASC 805, as amended, also provides that acquisition-related costs which an acquirer incurs
should be expensed in the period in which the costs are incurred and the services are received. ASC 810, as amended, requires that acquired assets and liabilities be measured at full fair value without consideration to ownership percentage. Under the updated provisions of ASC 810, any noncontrolling interests in
an acquiree should be presented as a separate component of equity rather than on a mezzanine level. Additionally, ASC 810, as amended, provides that net income or loss should be reported in the consolidated income statement at its consolidated amount, with disclosure on the face of the consolidated income
statement of the amount of consolidated net income which is attributable to the parent and noncontrolling interests, respectively. The retrospective application of ASC 810s presentation and disclosure requirements resulted in an increase to consolidated net income of $14.0 million for 2008 and $18.8 million for
2007. FHN also recognized an increase of total shareholders equity of $295.2 million upon adoption of the amendments to ASC 810 as a result of reclassifying the noncontrolling interest previously recognized on the Consolidated Statements of Condition as Preferred stock of subsidiary as a separate component
of equity. Accordingly, all prior periods have been represented to reflect this adoption.
See Note 1 Summary of Significant Accounting Policies for a complete discussion of accounting updates adopted during 2009.
ADOPTION OF ACCOUNTING UDPATES 2008
Effective January 1, 2008, upon adoption of the provisions of the FASB Codification update to ASC 825, Financial Instruments, FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes. Such loans are carried at fair value, with changes in the fair
value of these loans recognized in the mortgage banking noninterest income section of the Consolidated Statements of Income. After adoption of the provisions of the Codification update to ASC 825, FHN continued to account for all mortgage loans held for sale which were originated prior to 2008 and for mortgage
loans held for sale for which fair value accounting was not elected at the lower of cost or market value. For such loans, net origination fees and costs were deferred and included in the basis of the loans in calculating gains and losses upon sale. Also included in the basis of first lien mortgage loans was the value
accreted during the time that the loan was a locked commitment. The cost basis of loans qualifying for fair value hedge accounting under ASC 815, Derivatives and Hedging, was adjusted to reflect changes in fair value. Gains and losses realized from the sale of these assets were included in noninterest income.
Interests retained from the sale of such loans are included as a component of trading securities on the Consolidated Statements of Condition.
Effective January 1, 2008, FHN adopted SEC Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (SAB No. 109) prospectively for derivative loan commitments issued or modified after that date. SAB No. 109 rescinds SAB No. 105s prohibition on inclusion of
expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109 also applies to any loan commitments for which fair value accounting is elected under ASC 825. FHN did not elect fair value accounting for any other loan commitments
under ASC 825. The prospective application of SAB No. 109 and the prospective election to recognize substantially all new mortgage loan originations at fair value under ASC 825 resulted in a positive net impact of $1.0 million on 2008 pre-tax earnings.
25
FIRST HORIZON NATIONAL CORPORATION
Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 820, Fair Value Measurements and Disclosures for existing fair value measurement requirements related to financial assets and liabilities as well as to non-financial assets and liabilities which are remeasured at least annually.
The effective date for the application of ASC 820s measurement framework to non-financial assets and liabilities which are recognized at fair value on a non-recurring basis was delayed until fiscal years beginning after November 15, 2008, under transitional guidance issued by the FASB. ASC 820, as amended,
establishes a hierarchy to be used in performing measurements of fair value. Additionally, the updated provisions of ASC 820 emphasize that fair value should be determined from the perspective of a market participant while also indicating that valuation methodologies should first reference available market data
before using internally developed assumptions. ASC 820, as amended, also provides expanded disclosure requirements regarding the effects of fair value measurements on the financial statements. Upon the adoption of the updated provisions of ASC 820 for financial assets and liabilities as well as non-financial
assets and liabilities remeasured at least annually on January 1, 2008, a negative after-tax cumulative-effect adjustment of $12.5 million was made to the opening balance of undivided profits for interest rate lock commitments which FHN previously measured under the guidance of ASC 815-10-45. The effect of the
change in accounting for these interest rate lock commitments produced a positive effect of $19.4 million on 2008 pre-tax earnings as existing commitments were delivered as loans and additional commitments that would have been deferred under the guidance of ASC 815-10-45 were made. Substantially all
commitments existing at August 31, 2008 were sold.
Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 715, Compensation Retirement Benefits, which requires that a liability be recognized for contracts written to employees which provide future postretirement benefits that are covered by endorsement split-dollar life insurance
arrangements because such obligations are not considered to be effectively settled upon entering into the related insurance arrangements. FHN recognized a decrease to undivided profits of $8.5 million, net of tax, upon adoption of the amendments to ASC 715.
INCOME STATEMENT REVIEW 2008 COMPARED TO 2007
For 2008, FHN reported a net loss available to common shareholders of $199.4 million, or $1.03 diluted loss per share, compared to a loss of $170.1 million or $1.20 diluted earnings per share, in 2007. Return on average common equity and return on average assets for 2008 was a negative 7.87 percent and
negative .52 percent, respectively, compared to a negative 7.02 percent and negative .40 percent in 2007.
Earnings in 2008 included a favorable impact of $19.4 million (net of tax) from the effect of a change in accounting for interest rate lock commitments as FHN adopted the FASB Accounting Standards Codification guidelines relating to Fair Value Measurements and Disclosures (ASC 820-10-50). ASC 820
emphasizes that fair value should be determined from the perspective of a market participant while also indicating that valuation methodologies should first reference available market data before using internally developed assumptions. There was no effect of a change in accounting principle adjustment that
impacted results in 2007.
Comparisons between reported earnings are directly and significantly affected by a number of factors in both 2008 and 2007. Several significant items, including housing and credit market disruptions, increased provisioning, and restructuring, repositioning, and efficiency initiatives, impacted FHNs performance in
2008 and 2007. Additionally, declining economic conditions become evident in 2008.
Beginning in 2007, FHN conducted an ongoing, company-wide review of business practices with the goal of improving overall profitability and productivity. In order to redeploy capital to higher-return businesses, origination through national construction lending operations was discontinued, FHN sold the national
mortgage origination and servicing platforms, including $19.1 billion of unpaid principal balance of its mortgage servicing portfolio, executed multiple additional bulk MSR sales; and the sale of the remaining First Horizon Bank branches was completed. Total net charges of $91.4 million and $98.7 million were
recognized in 2008 and 2007, respectively, related to restructuring, repositioning, and efficiency initiatives.
26
FIRST HORIZON NATIONAL CORPORATION
In 2007, FHN recognized $55.7 million of expenses associated with the recognition of a contingent guarantee related to Visa Inc.s litigation matters. In 2008, Visa deposited funds into the litigation escrow account triggering FHNs reduction of its contingent liability by $30.0 million.
Net interest income declined to $895.1 million in 2008 compared to $940.6 million in 2007 as average earning assets declined 9 percent to $30.4 billion and average interest-bearing liabilities declined 10 percent to $26.0 billion in 2008. Net interest margin was 2.95 percent for 2008 compared to 2.82 percent in
2007. The increase in the margin was attributable to a decrease in interest-bearing assets, increased spreads in capital markets trading inventory and the mortgage warehouse, and a reduction in higher-cost short-term funding due to the issuance of common stock in second quarter 2008. The positive effects more
than offset the negative impact of an increase in nonaccrual loans.
Noninterest income contributed 62 percent to total revenue in 2008 compared to 48 percent in 2007 and increased $643.6 million to $1.5 billion in 2008. Impacting this increase were mortgage banking and capital markets noninterest income and securities gains which were partially offset by declines in loan sale
and securitization income and losses on divestitures relating to restructuring, repositioning, and efficiency initiatives.
Capital markets noninterest income increased to $483.5 million in 2008 from $284.2 million in 2007. Revenues from fixed income sales increased $276.1 million from 2007 primarily due to a steepened yield curve, market volatility, and other factors while revenues from other products decreased $76.8 million due
to reduced structured finance activities and a $36.2 million LOCOM adjustment on the trust preferred loan portfolio.
Mortgage banking noninterest income increased significantly in 2008 to $518.0 million from $69.5 million in 2007. Net revenue from origination activity increased 89 percent to $223.6 million in 2008 from $118.4 million in 2007 as 2007 was negatively impacted by secondary market disruptions since credit and
liquidity risk in the pipeline and warehouse were unhedged. Gain on sale margins were impacted as a result of significant spread widening on ARM and non-agency eligible production. Origination income in 2008 was impacted by several factors. The adoption of new accounting standards in the first quarter,
including the fair value election for substantially all mortgage warehouse loans, positively impacted gross origination income by $142.2 million. The third quarter 2008 sale of national origination offices significantly reduced origination volumes as compared to 2007 with originations continuing only within FHNs
regional banking footprint. Additionally, 2008 origination income was negatively impacted by a $15.5 million charge related to amounts owed to private mortgage insurers on loans previously sold and a fourth quarter $15.2 million negative valuation adjustment to the remaining mortgage warehouse.
Net servicing income increased $360.9 million in 2008 to $292.0 million compared to a net servicing loss of $68.9 million in 2007. A slowdown in runoff positively impacted servicing income in 2008 compared to 2007 by $109.7 million as the size of the mortgage servicing portfolio declined. Changes in MSR value
other than runoff (valuation model inputs or assumptions) negatively impacted net servicing revenues by $384.2 million in 2008 compared to $235.0 million in 2007 as lower interest rates increased prepayment speeds. Gross servicing fees declined to $231.9 million from $311.4 million consistent with the decline in
the servicing portfolio. Lower interest rates positively impacted servicing hedge gains by $548.8 million in 2008 compared to $73.2 million in 2007. In 2008, other mortgage banking income was negatively impacted by a $6.5 million charge for minimum fee guarantees on prior servicing sales.
Noninterest income from deposit transactions and cash management increased to $179.0 million in 2008 from $175.3 million in 2007, reflecting increased corporate cash management fees from lower customer earnings credits. Brokerage fees and commissions decreased $5.6 million to $32.2 million reflecting poor
market conditions. Noninterest income from insurance commissions decreased to $29.1 million in 2008 from $31.7 million in 2007 primarily due to a soft property and casualty market and a decline in mortgage related insurance sales. Noninterest income from trust services and investment management was $33.8
million in 2008 compared to $40.3 million in 2007 due to market-related declines in trust asset values.
In 2008, losses from divestitures were $19.0 million and were related to the sale of mortgage banking operations and certain First Horizon Bank branches while 2007 included $15.7 million of gains related to the sale of certain First Horizon Bank branches. Net securities gains in 2008 were $66.1 million and
primarily related to Visas redemption of its Class B shares held by FHN in connection with Visa Inc.s IPO that resulted in a gain of $65.9
27
FIRST HORIZON NATIONAL CORPORATION
million. Net securities losses of $1.2 million in 2007 primarily related to changes in the investment portfolio that were made to compensate for loan growth in first quarter which were offset by impairment charges related to securities that, in the opinion of management, were other-than-temporarily impaired.
All other income declined to $127.6 million in 2008 from $153.4 million in 2007. Other income was positively impacted by $33.8 million of debt repurchase gains and an increase in reinsurance premium income. Revenue from loans sales and securitizations decreased to a loss of $8.6 million in 2008 from income
of $23.9 million in 2007. The decrease is primarily due to market disruptions that began in 2007 which resulted in no second lien or HELOC loan sales in 2008, an increase in HELOC residual write-downs, and a decrease in servicing fees resulting from runoff and a smaller servicing portfolio. Deferred
compensation income increased by $30.6 million and is mirrored by an increase in deferred compensation expense. All other components decreased slightly. In 2007, other income was negatively impacted by $16.8 million related to LOCOM and other consumer lending adjustments.
Total noninterest expense for 2008 decreased 10 percent to $1.6 billion from $1.8 billion in 2007. Personnel expense decreased $3.5 million from $932.4 million in 2007 primarily due to restructuring, repositioning, and efficiency initiatives and headcount reductions in Mortgage Banking and National Specialty
Lending directly related to revenue contraction. Occupancy costs decreased 20 percent or $26.1 million primarily due to the sale of certain Mortgage Banking operations in 2008. Equipment rentals, depreciation and maintenance, communications and courier, intangible amortization, and all other expenses declined
consistent with FHNs focus on core businesses. However, foreclosure losses, provision for mortgage foreclosure and repurchase obligations, and contract employment expenses increased from 2007. All other noninterest expense decreased $93.4 million in 2008 despite an increase in FDIC premiums as well as a
$25.4 million increase in miscellaneous loan costs related to the fair value election for substantially all mortgage warehouse loans. In 2007, a $55.7 million charge was taken to reflect FHNs proportionate share of Visa Inc.s legal matters while $30.0 million of this charge was reversed in 2008. In 2007, FHN
recognized goodwill impairments of $13.0 million related to certain First Horizon Bank branches and $71.1 million for the Mortgage Banking segment. All other expense categories decreased consistent with FHNs focus on efficiency initiatives and reduction of non-core businesses.
The provision for loan losses increased significantly to $1.1 billion in 2008 from $.3 billion in 2007. While all portfolios were affected by the weakened real estate market and general decline in economic conditions in 2008, the increase primarily reflected deterioration in the national residential and commercial real
estate construction portfolios (one time close retail real estate construction loans extended to consumers, loans to homebuilders, including condominium construction loans, and loans to finance income-producing real estate).
STATEMENT OF CONDITION REVIEW 2008 COMPARED TO 2007
Total assets were $31.0 billion on December 31, 2008, compared to $37.0 billion on December 31, 2007. During 2008, earning assets averaged $30.4 billion compared with $33.4 billion for 2007. Average loans decreased 2 percent to $21.7 billion during 2008 as retail loans decreased by 3 percent and
commercial loans decreased by 1 percent. Average loans represented 71 percent of average earning assets in 2008 compared to 66 percent in 2007.
C&I loans increased 3 percent in 2008, or $236.5 million, reflecting a transfer of smaller issuer trust preferred loans of $340 million, net of LOCOM, to the loan portfolio in the second quarter of 2008. Income commercial real estate (Income CRE) and residential commercial real estate (Residential CRE) averaged
$3.7 billion, in 2008 compared to $4.1 billion in 2007. The Income CRE portfolio increased $133.5 million, or 7 percent, which was the result of loan growth in the first half of 2008. Residential CRE declined $541.2 million, or 24 percent, in 2008 due to the wind-down of national construction lending products and
higher charge-offs since 2007. The residential real estate loan portfolio (including real estate loans pledged against other collateralized borrowings) increased by 4 percent, or $313.2 million, as a result of approximately $600 million of permanent mortgages that were transferred to the loan portfolio throughout 2008.
The retail real estate construction (OTC) portfolio decreased 28 percent, or $594.2 million, in 2008.
28
FIRST HORIZON NATIONAL CORPORATION
Investment securities averaged $3.0 billion in 2008 and $3.4 billion in 2007. Investment securities represented 10 percent of earning assets in 2008 and 2007.
Loans held for sale represented 9 percent of total earning assets in 2008 compared with 12 percent in 2007. During 2008, loans held for sale averaged $2.6 billion, a decrease of 33 percent, or $1.3 billion from 2007. This decline was related to a smaller warehouse as the national mortgage origination platform
was sold in August 2008 and the remaining warehouse contracted. Additionally, first and second lien mortgages and small issuer trust preferred loans were moved to the loan portfolio throughout 2008.
Average trading securities decreased 30 percent to $1.9 billion in 2008 from $2.7 billion in 2007 primarily as a result of trading inventory management initiatives that began in 2007. Other earning assets decreased 3 percent to $1.3 billion in 2008 from $1.4 billion in 2007 due to lower levels of securities
purchased under agreements to resell in Capital Markets. Offsetting this decline was an increase in interest-bearing cash as the Federal Reserve began paying interest on these deposits in the fourth quarter 2008.
During 2008, core deposits decreased 4 percent, or $512.6 million, and averaged $12.9 billion. Interest-bearing core deposits increased 4 percent, or $319.2 million, to an average balance of $8.6 billion in 2008. Growth in interest-bearing core deposits was primarily due to growth in savings deposits. Average
noninterest-bearing core deposits decreased from $5.1 billion in 2007 to $4.3 billion in 2008 as custodial deposits were transferred when the related servicing rights were sold in 2008 and competition for deposits increased in 2008.
Short-term purchased funds averaged $11.3 billion in 2008, down 20 percent from $14.0 billion in the previous year. The decrease was primarily driven by a decline in purchased CDs as FHN focused on lower cost more stable funding sources such as the Federal Reserve TAF and Federal Home Loan Bank
borrowings. Average long-term borrowings decreased 7 percent, or $.5 billion, and averaged $6.1 billion in 2008. The decrease was the result of bank note maturities and repurchases as funding needs decreased due to asset contraction.
CAPITAL
Managements objectives are to provide capital sufficient to cover the risks inherent in FHNs businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. During 2009, FHN has continued its participation in the U.S. Treasury Capital Purchase Program
which generated $866.5 million of proceeds in 2008 as a result of the issuance and sale of preferred stock and a common stock warrant. Additionally in 2009, FHN has maintained the quarterly stock dividend paid in lieu of a cash dividend at a rate that is determined quarterly by the board of directors. Average
equity increased to $3.5 billion in 2009 from $2.9 billion in 2008 and $2.7 billion in 2007. The increase in average equity primarily reflects the full year impact of the preferred stock and common stock warrant issued under the CPP in fourth quarter 2008. Equity was $3.3 billion at year-end 2009, an 8 percent
decrease from 2008 reflecting net losses during 2009. Period-end equity increased 47 percent from year-end 2007.
Pursuant to board authority, FHN may repurchase shares from time to time and will evaluate the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the shareholders, subject to legal, regulatory, and CPP constraints.
29
FIRST HORIZON NATIONAL CORPORATION
Table 12 - Capital Ratios
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
Total period-end equity to period-end assets |
|
|
|
12.67 |
% |
|
|
|
|
11.52 |
% |
|
|
|
|
6.57 |
% |
|
FHNs tier 1 risk-based capital |
|
|
|
16.39 |
|
|
|
|
15.03 |
|
|
|
|
8.12 |
|
FHNs total risk-based capital |
|
|
|
21.92 |
|
|
|
|
20.19 |
|
|
|
|
12.75 |
|
FHNs leverage |
|
|
|
13.36 |
|
|
|
|
12.22 |
|
|
|
|
6.64 |
|
Tier 1 common to risk weighted assets (a) |
|
|
|
9.88 |
|
|
|
|
9.56 |
|
|
|
|
6.16 |
|
Adjusted tangible common equity to risk weighted assets (a) |
|
|
|
9.06 |
|
|
|
|
8.80 |
|
|
|
|
6.16 |
|
Tangible common equity to tangible assets (a) |
|
|
|
7.75 |
|
|
|
|
7.34 |
|
|
|
|
5.13 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
Represents a non-GAAP measure. Refer to Table 26 for the non-GAAP to GAAP reconciliation.
|
Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institutions capital ratios decline below predetermined levels, it would become subject to a series of
increasingly restrictive regulatory actions. The system categorizes a depository institutions capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution to qualify as well-capitalized, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6
percent, 10 percent, and 5 percent, respectively. As of December 31, 2009, FHN and FTBNA had sufficient capital to qualify as well-capitalized institutions as shown in Note 13 Regulatory Capital. In 2010, capital ratios are expected to remain strong and significantly above well-capitalized standards despite a
difficult operating environment.
Table 13 - Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
(Volume in thousands) |
|
Total Number of Shares Purchased |
|
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced Programs |
|
Maximum Number of Shares that May Yet Be Purchased Under the Programs |
|
2009 |
|
|
|
|
|
|
|
|
October 1 to October 31 |
|
|
|
* |
|
|
|
$ |
|
13.31 |
|
|
|
|
* |
|
|
|
|
40,329 |
|
November 1 to November 30 |
|
|
|
- |
|
|
|
|
NA |
|
|
|
|
- |
|
|
|
|
40,329 |
|
December 1 to December 31 |
|
|
|
- |
|
|
|
|
NA |
|
|
|
|
- |
|
|
|
|
40,329 |
|
|
|
|
Total |
|
|
|
* |
|
|
|
$ |
|
13.31 |
|
|
|
|
* |
|
|
|
|
* Amount is less than 500 shares
Compensation Plan Programs:
|
|
|
|
|
A consolidated compensation plan share purchase program was announced on August 6, 2004. This plan consolidated into a single share purchase program all of the previously authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase authority had expired.
The total amount originally authorized under this consolidated compensation plan share purchase program is 25.1 million shares. On April 24, 2006, an increase to the authority under this purchase program of 4.5 million shares was announced for a new total authorization of 29.6 million shares. The authority has been increased to reflect the stock dividends distributed through October 1,
2009. The shares may be purchased over the option exercise period of the various compensation planson or before December 31, 2023. Stock options granted after January 2, 2004, must be exercised no later than the tenth anniversary of the grant date.On December 31, 2009, the maximum number of shares that may be purchased under the program was 32.0 million shares.
|
Other Programs:
|
|
|
|
|
On October 16, 2007, the board of directors approved a 7.5 million share purchase authority that will expire on December 31, 2010. The authority hasbeen increased to reflect the stock dividends distributed through October 1, 2009. Purchases will be made in the open market or through privatelynegotiated transactions and will be subject to market conditions, accumulation of excess
equity, prudent capital management, and legal and regulatoryconstraints. Until the third anniversary of the sale of the preferred shares issued in the CPP, FHN may not repurchase common or other equityshares (subject to certain limited exceptions) without the USTs approval. This authority is not tied to any compensation plan, and replaces an oldernon-plan share purchase authority which
was terminated. On December 31, 2009, the maximum number of shares that may be purchased under the program was 8.3 million shares.
|
30
FIRST HORIZON NATIONAL CORPORATION
On December 31, 2009, book value per common share was $9.95 compared to $11.31 for 2008 and $14.97 for 2007. Average shares outstanding for the three-year period were 221.7 million in 2009, 194.8 million in 2008, and 142.3 million in 2007. Period-end shares outstanding for this same three-year period
were 222.0 million, 220.7 million, and 142.6 million, respectively. FHNs shares are traded on The New York Stock Exchange under the symbol FHN. The sales price ranges, net income/(loss) available to common shareholders per share, and dividends declared by quarter, for each of the last two years, are
presented in Table 25. All shares and per share information have been adjusted for the stock dividends declared through October 2009.
RISK MANAGEMENT
FHN has an enterprise-wide approach to risk governance, measurement, management, and reporting including an economic capital allocation process that is tied to risk profiles used to measure risk-adjusted returns. The Enterprise-wide Risk/Return Management Committee oversees risk management governance.
Committee membership includes the Chief Executive Officer and other executive officers of FHN. The Chief Risk Officer oversees reporting for the committee. Risk management objectives include evaluating risks inherent in business strategies, monitoring proper balance of risks and returns, and managing risks to
minimize the probability of future negative outcomes. The Enterprise-wide Risk/Return Management Committee oversees and receives regular reports from the Credit Risk Management Committee, Asset/Liability Committee (ALCO), Capital Management Committee, Compliance Risk Committee, Operational Risk
Committee, and the Executive Program Governance Forum. The Chief Credit Officer, Executive Vice President Funds Management and Corporate Treasurer (chairs both ALCO and Capital Management Committee), Senior Vice President Corporate Compliance, Chief Risk Officer, and Executive Vice President and Chief
Information Officer chair these committees respectively. Reports regarding Credit, Asset/Liability Management, Market Risk, Capital Management, Compliance, and Operational Risks are provided to the Credit Policy and Executive Committee, and/or Audit Committee of the Board and to the full Board.
Risk management practices include key elements such as independent checks and balances, formal authority limits, policies and procedures, and portfolio management all executed through experienced personnel. The Internal Audit Department, Credit Risk Assurance Group, Credit Policy and Regulations Group,
and Credit Portfolio Management Group also evaluate risk management activities. These evaluations are reviewed with management and the Audit Committee, as appropriate.
The Compensation Committee, General Counsel, Chief Risk Officer, EVP Human Resources, and Chief Credit Officer convene periodically, as required by the U.S. Treasurys Troubled Asset Relief Program (TARP), to review and assess key business risks and the relation of those risks to compensation plans across
the company. A comprehensive review was conducted with the Compensation Committee of the Board of Directors during third quarter 2009.
MARKET UNCERTAINTIES AND PROSPECTIVE TRENDS
Given the significant current uncertainties that exist within the housing and credit markets and the national economy, it is anticipated that 2010 will be challenging for FHN. Despite the significant reduction of legacy mortgage banking operations, the current economic downturn could increase borrower defaults
resulting in elevated loan loss provision (especially within the commercial real estate portfolio and bank-related loans), foreclosure and loan repurchase losses, and increased costs as FHN manages the amount of foreclosed assets. Additionally, FHN will continue to be affected by market factors as it addresses the
mortgage loan warehouse and attempts to reduce the remaining servicing portfolio. As difficulties in the credit markets persist, FHN will continue to adapt its liquidity management strategies. Further deterioration of general economic conditions could result in increased credit costs depending on the length and depth
of this market cycle.
INTEREST RATE RISK MANAGEMENT
Interest rate risk is the risk that changes in prevailing interest rates will adversely affect assets, liabilities, capital, income, and/or expense at different times or in different amounts. ALCO, a committee consisting of senior management that meets regularly, is responsible for coordinating the financial management of
interest rate risk.
31
FIRST HORIZON NATIONAL CORPORATION
FHN primarily manages interest rate risk by structuring the balance sheet to attempt to maintain the desired level of associated earnings while operating within prudent risk limits and thereby preserving the value of FHNs capital.
Net interest income and the financial condition of FHN are affected by changes in the level of market interest rates as the repricing characteristics of loans and other assets do not necessarily match those of deposits, other borrowings, and capital. When earning assets reprice more quickly than liabilities (when the
balance sheet is asset-sensitive), net interest income will benefit in a rising interest rate environment and will be negatively impacted when interest rates decline. In the case of floating rate assets and liabilities with similar repricing frequencies, FHN may also be exposed to basis risk which results from changing
spreads between earning and borrowing rates.
Since the August 2008 divestiture of certain mortgage banking operations and the discontinuation of the national mortgage banking origination business, FHNs risk exposure to interest rates has changed somewhat. In 2007 and through August 2008, Mortgage Banking revenue was primarily generated from
originating, selling, and servicing residential mortgage loans and was highly sensitive to changes in interest rates due to the direct effect that changes in interest rates have on loan demand. FHN was exposed to fluctuations in the fair value of the mortgage warehouse and the pipeline resulting from changes in
interest rates. Subsequent to the divestiture, Mortgage Banking income is primarily composed of servicing residential mortgage loans and fair value adjustments to the remaining warehouse. In 2009, the mortgage pipeline was immaterial and the size of the mortgage warehouse has been significantly reduced.
Net Interest Income Simulation Analysis
Management uses interest rate exposure models to formulate strategies to improve balance sheet positioning, earnings, or both, within FHNs interest rate risk, liquidity, and capital guidelines. The information provided in this section, including the discussion regarding simulation analysis and rate shock analysis, is
forward-looking. Actual results could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this MD&A. FHN uses simulation analysis as its primary tool to evaluate interest rate risk
exposure. This type of analysis computes net interest income at risk under a variety of market interest rate scenarios to dynamically identify interest rate risk exposures exclusive of the potential impact on fee income. This simulation, which considers forecasted balance sheet changes, prepayment speeds, deposit
mix, pricing impacts, and other changes in the net interest spread, provides an estimate of the annual net interest income at risk for given changes in interest rates. The results help FHN develop strategies for managing exposure to interest rate risk. Like any forecasting technique, interest rate simulation modeling
is based on a number of assumptions and judgments. In this case, the assumptions relate primarily to loan and deposit growth, asset and liability prepayments, interest rates, and on- and off-balance sheet hedging strategies. Management believes the assumptions used in its simulations are reasonable.
Nevertheless, simulation modeling provides only a sophisticated estimate, not a precise calculation of exposure to changes in interest rates.
The simulation models used to analyze net interest income create various at-risk scenarios looking at increases and/or decreases in interest rates from an instantaneous movement or a staggered movement over a certain time period. In addition, the risk of changes in the yield curve is estimated by flattening and
steepening the yield curve to historical levels. These hypothetical rate moves are used to simulate net interest income exposure to historically extreme movements in interest rates. Management reviews these different scenarios to determine alternative strategies and executes based on that evaluation. The models are
regularly updated to incorporate management action. Any scenarios that indicate a change in net interest income of three percent or more from a base net interest income are presented to the Board quarterly. At December 31, 2009, the interest rate environment was at an unprecedented low level. Under these
market conditions, traditional scenarios forecasting declining rates are no longer meaningful. Accordingly, declining rate shock scenarios (including minus 25 basis points and minus 200 basis points) that had been modeled in prior periods were not performed.
The remaining scenarios performed attempt to capture risk to net interest income from rising rates and changes in the shape of the yield curve. Based on the rate sensitivity position on December 31, 2009, net interest income exposure over the next 12 months to a rate shock of plus 200 basis points is estimated
to be a favorable variance of approximately 9 percent of base net interest income. A flattening yield curve scenario results in a favorable variance in net interest income of approximately 4 percent. These hypothetical scenarios are used as one estimate
32
FIRST HORIZON NATIONAL CORPORATION
of risk, and do not necessarily represent managements current view of future interest rates or market developments.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also affects the fair value of MSR and Capital Markets trading inventory that are reflected in Mortgage Banking and Capital Markets noninterest income, respectively. Low or declining interest rates typically leads to lower servicing-related income due to the impact of
higher loan prepayments on the value of MSR while high or rising interest rates typically increase servicing-related income. To determine the amount of interest rate risk and exposure to changes in fair value of MSR, FHN uses multiple scenario rate shock analysis, including the magnitude and direction of interest
rate changes, prepayment speeds, and other factors that could affect Mortgage Banking income.
Generally, low or declining interest rates with a positively sloped yield curve tends to increase Capital Markets income through higher demand for fixed income products. Additionally, the fair value of Capital Markets trading inventory can fluctuate as a result of differences between current interest rates when
compared to the interest rates of fixed-income securities in the trading inventory.
Derivatives
FHN utilizes derivatives to protect against unfavorable fair value changes resulting from changes in interest rates of MSR and other retained assets. Derivative instruments are also used to protect against the risk of loss arising from adverse changes in the fair value of a portion of Capital Markets securities inventory
due to changes in interest rates. Derivative financial instruments are used to aid in managing the exposure of the balance sheet and related net interest income and noninterest income to changes in interest rates. Interest rate contracts (potentially including swaps, swaptions, and mortgage forward purchase
contracts) are utilized to protect against MSR prepayment risk that generally accompanies declining interest rates. Net interest income earned on swaps and similar derivative instruments used to protect the value of MSR increases when the yield curve steepens and decreases when the yield curve flattens or
inverts. Capital Markets enters into futures contracts to economically hedge interest rate risk associated with changes in fair value currently recognized in Capital Markets noninterest income. FHN does not use derivative instruments to protect against changes in fair value of loans or loans held for sale other than
certain small issuer trust preferred loans. Other than the impact related to the immediate change in market value of the balance sheet, such as MSR, these simulation models and related hedging strategies exclude the dynamics related to how fee income and noninterest expense may be affected by actual changes
in interest rates or expectations of changes. See Note 25 Derivatives and Off-Balance Sheet Arrangements for additional discussion of these instruments.
Table 14 details the interest rate sensitivity profile on December 31, 2009, on Capital Markets trading securities based on projected cash flows categorized by anticipated settlement date and mortgage banking trading securities categorized by expected maturity dates. Additionally, this table provides the average
rates earned on these trading securities and both the notional and fair values of derivative financial instruments held for trading.
33
FIRST HORIZON NATIONAL CORPORATION
Table 14 - Risk Sensitivity Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for Trading (Dollars in millions) |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015+ |
|
Total |
|
Fair Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
|
$ |
|
634 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
66 |
|
|
|
$ |
|
700 |
|
|
|
$ |
|
700 |
|
Average interest rate |
|
|
|
3.64 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
15.80 |
% |
|
|
|
|
4.79 |
% |
|
|
|
|
Interest Rate Derivatives (notional value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to buy |
|
|
$ |
|
2,659 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
2,659 |
|
|
|
$ |
|
8 |
|
Weighted average settlement price |
|
|
|
101.28 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
101.28 |
% |
|
|
|
Commitments to sell |
|
|
$ |
|
2,717 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
2,717 |
|
|
|
$ |
|
(11 |
) |
|
Weighted average settlement price |
|
|
|
101.48 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
101.48 |
% |
|
|
|
Caps purchased |
|
|
|
- |
|
|
|
$ |
|
50 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
11 |
|
|
|
$ |
|
9 |
|
|
|
$ |
|
70 |
|
|
|
$ |
|
1 |
|
Weighted average strike price |
|
|
|
- |
|
|
|
|
2.24 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6.50 |
% |
|
|
|
|
6.50 |
% |
|
|
|
|
3.46 |
% |
|
|
|
Caps written |
|
|
|
- |
|
|
|
$ |
|
(50 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
(11 |
) |
|
|
|
$ |
|
(9 |
) |
|
|
|
$ |
|
(70 |
) |
|
|
|
$ |
|
(1 |
) |
|
Weighted average strike price |
|
|
|
- |
|
|
|
|
2.24 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6.50 |
% |
|
|
|
|
6.50 |
% |
|
|
|
|
3.46 |
% |
|
|
|
Floors purchased |
|
|
$ |
|
50 |
|
|
|
$ |
|
100 |
|
|
|
$ |
|
10 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
160 |
|
|
|
$ |
|
4 |
|
Weighted average strike price |
|
|
|
6.20 |
% |
|
|
|
|
6.00 |
% |
|
|
|
|
5.50 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6.03 |
% |
|
|
|
Floors written |
|
|
$ |
|
(50 |
) |
|
|
|
$ |
|
(100 |
) |
|
|
|
$ |
|
(10 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
(160 |
) |
|
|
|
$ |
|
(4 |
) |
|
Weighted average strike price |
|
|
|
6.20 |
% |
|
|
|
|
6.00 |
% |
|
|
|
|
5.50 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6.03 |
% |
|
|
|
Swap contracts purchased |
|
|
$ |
|
107 |
|
|
|
$ |
|
263 |
|
|
|
$ |
|
346 |
|
|
|
$ |
|
217 |
|
|
|
$ |
|
88 |
|
|
|
$ |
|
406 |
|
|
|
$ |
|
1,427 |
|
|
|
$ |
|
(51 |
) |
|
Average pay rate (fixed) |
|
|
|
6.23 |
% |
|
|
|
|
5.74 |
% |
|
|
|
|
4.90 |
% |
|
|
|
|
5.34 |
% |
|
|
|
|
5.89 |
% |
|
|
|
|
5.57 |
% |
|
|
|
|
5.47 |
% |
|
|
|
Average receive rate (floating) |
|
|
|
2.02 |
% |
|
|
|
|
1.99 |
% |
|
|
|
|
.93 |
% |
|
|
|
|
1.78 |
% |
|
|
|
|
3.02 |
% |
|
|
|
|
2.12 |
% |
|
|
|
|
1.80 |
% |
|
|
|
Swap contracts purchased |
|
|
$ |
|
35 |
|
|
|
$ |
|
55 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
90 |
|
|
|
$ |
|
2 |
|
Average pay rate (floating) |
|
|
|
3.25 |
% |
|
|
|
|
3.24 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
3.24 |
% |
|
|
|
Average receive rate (fixed) |
|
|
|
4.65 |
% |
|
|
|
|
6.17 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
5.58 |
% |
|
|
|
Swap contracts sold |
|
|
$ |
|
(107 |
) |
|
|
|
$ |
|
(263 |
) |
|
|
|
$ |
|
(170 |
) |
|
|
|
$ |
|
(167 |
) |
|
|
|
$ |
|
(88 |
) |
|
|
|
$ |
|
(400 |
) |
|
|
|
$ |
|
(1,195 |
) |
|
|
|
$ |
|
32 |
|
Average pay rate (floating) |
|
|
|
2.02 |
% |
|
|
|
|
1.99 |
% |
|
|
|
|
1.64 |
% |
|
|
|
|
2.24 |
% |
|
|
|
|
3.02 |
% |
|
|
|
|
2.15 |
% |
|
|
|
|
2.11 |
% |
|
|
|
Average receive rate (fixed) |
|
|
|
6.23 |
% |
|
|
|
|
5.74 |
% |
|
|
|
|
4.81 |
% |
|
|
|
|
5.65 |
% |
|
|
|
|
5.89 |
% |
|
|
|
|
5.66 |
% |
|
|
|
|
5.62 |
% |
|
|
|
Swap contracts sold |
|
|
$ |
|
(35 |
) |
|
|
|
$ |
|
(55 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
(90 |
) |
|
|
|
$ |
|
(2 |
) |
|
Average pay rate (fixed) |
|
|
|
4.65 |
% |
|
|
|
|
6.17 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
5.58 |
% |
|
|
|
Average receive rate (floating) |
|
|
|
3.25 |
% |
|
|
|
|
3.24 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
3.24 |
% |
|
|
|
Futures contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to sell |
|
|
$ |
|
40 |
|
|
|
$ |
|
40 |
|
|
|
$ |
|
40 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
$ |
|
120 |
|
|
|
|
* |
|
Weighted average settlement price |
|
|
|
99.08 |
% |
|
|
|
|
97.53 |
% |
|
|
|
|
96.37 |
% |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
97.66 |
% |
|
|
|
|
* Amount is less than $500,000
LIQUIDITY MANAGEMENT
ALCO focuses on the funding of assets with liabilities of the appropriate duration, while mitigating the risk of not meeting unexpected cash needs. The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors, other creditors, and borrowers, and the
requirements of ongoing operations. This objective is met by maintaining liquid assets in the form of trading securities and securities available for sale, growing core deposits, and the repayment of loans. ALCO is responsible for managing these needs by taking into account the marketability of assets; the sources,
stability, and availability of funding; and the level of unfunded commitments. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources, including core deposits, the securities available for sale portfolio, the Federal Reserve
Banks, access to Federal Reserve Bank programs, the Federal Home Loan Bank (FHLB), availability to the overnight and term Federal Funds markets, and dealer and commercial customer repurchase agreements. During 2008 and 2009, FHN utilized the Federal Reserve Banks Term Auction Facility (TAF).
However, by the end of 2009, funding from TAF was substantially reduced as this program is set to expire in 2010.
Core deposits are a significant source of funding and have been a stable source of liquidity for banks. The Federal Deposit Insurance Corporation insures these deposits to the extent authorized by law. Generally, these limits were temporarily increased to $250 thousand per account owner through 2013. Total loans,
excluding loans held for sale and real estate loans pledged against other collateralized borrowings, to core deposits ratio was 122 percent in 2009, 160 percent in 2008, and 156 percent in 2007. The ratio is expected to continue to decline as the national loan portfolios continue to decrease.
34
FIRST HORIZON NATIONAL CORPORATION
In 2005, FTBNA established a bank note program providing additional liquidity of $5.0 billion. On December 31, 2009, $.7 billion was outstanding through the bank note program with $.1 billion scheduled to mature in 2010 and the remaining scheduled to mature in 2011. During 2008 and 2009, market and other
conditions have been such that FTBNA has not been able to affordably utilize the bank note program, and instead has obtained less credit sensitive sources of funding including secured sources such as FHLB borrowings and the TAF. FTBNA expects that its inability to use the bank note program will continue for
some time to come, and cannot predict when that inability will end.
FHN and FTBNA have the ability to generate liquidity by issuing preferred or common equity or incurring other debt subject to market conditions and compliance with applicable regulatory requirements from time to time. In 2008, FHN issued 69 million shares of common stock which generated approximately $660
million in net proceeds and also issued and sold perpetual preferred stock and a common stock warrant to the UST under the CPP which generated $866.5 million in proceeds. Further, liquidity has been obtained through FTBNAs issuance of approximately $250 million of subordinated notes in 2006. In addition,
liquidity has been obtained through issuance of $300 million of guaranteed preferred beneficial interests in FHNs junior subordinated debentures through two Delaware business trusts, wholly owned by FHN. See Note 10 Long-Term Debt, Note 11 Guaranteed Preferred Beneficial Interests in First Horizons Junior
Subordinated Debentures, and Note 12 Preferred Stock and Other Capital for additional information. FHN also evaluates alternative sources of funding, including loan sales, syndications, and FHLB borrowings in its management of liquidity.
Parent company liquidity is maintained by cash flows stemming from dividends and interest payments collected from subsidiaries along with net proceeds from stock sales through employee plans, which represent the primary sources of funds to pay cash dividends to shareholders and interest to debt holders. The
amount paid to the parent company through FTBNA common dividends is managed as part of FHNs overall cash management process, subject to applicable regulatory restrictions described in the next paragraph. As discussed above, the parent company also has the ability to enhance its liquidity position by
raising equity or incurring debt subject to market conditions and compliance with applicable regulatory requirements from time to time.
Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of cash, common dividends, loans, or advances. At any given time, the pertinent portions of those regulatory restrictions allow FTBNA to declare preferred or common dividends without prior regulatory approval in
an amount equal to FTBNAs retained net income for the two most recent completed years plus the current year to date. For any period, FTBNAs retained net income generally is equal to FTBNAs regulatory net income reduced by the preferred and common dividends declared by FTBNA. Excess dividends in
either of the two most recent completed years may be offset with available retained net income in the two years immediately preceding it. Applying the applicable rules, FTBNAs total amount available for dividends was a negative $469.3 million at December 31, 2009 and a negative $322.0 million at January 1,
2010.
FTBNA has applied for approval from the OCC to declare and pay dividends on its preferred stock outstanding payable in April 2010. FTBNA has not requested approval to pay common dividends to its sole common stockholder, FHN. Although FHN has funds available for dividends even without FTBNA dividends,
availability of funds is not the sole factor considered by FHNs Board in deciding whether or not to declare a dividend of any particular size; the Board also must consider FHNs current and prospective capital, liquidity, and other needs. Under the terms of the CPP, FHN is not permitted to increase its cash
common dividend rate for a period of three years from the date of issuance without permission of the Treasury. At the time of the preferred share and common stock warrant issuance, FHN did not pay a common cash dividend.
On January 19, 2010, the Board declared a dividend in shares of common stock at a rate of 1.4561 percent to be distributed on April 1, 2010 to shareholders of record on March 12, 2010. The Board intends to reinstate a cash dividend at an appropriate and prudent level once earnings and other conditions
improve sufficiently, consistent with legal, regulatory, CPP, and other constraints. The board approved and FHN has paid the 5% (annualized) dividend on the preferred CPP on February 16, 2010.
35
FIRST HORIZON NATIONAL CORPORATION
Cash Flows
The Consolidated Statements of Cash Flows provide information on cash flows from operating, investing, and financing activities for each of the three years ended December 31, 2009, 2008, and 2007. In 2009, liquidity was predominantly provided by a contracting balance sheet and through cash-related operating
activities. Net cash provided by investing activities was the primary contributor of liquidity during 2009. Net cash provided by investing activities was $2.4 billion and was primarily the result of a reduction in the loan portfolio. FHN has actively reduced its national construction and home equity portfolios, however,
with soft loan demand during 2009, cash outflows to fund new loans was nominal. Additionally, a net $.5 billion decline of AFS securities due to natural run-off of underlying assets, generally mortgages, also positively contributed to cash flows from investing activities. Cash flows from investing activities during 2008
were much less significant as the loan portfolio did not considerably decline until 2009.
Operating cash flows were primarily the result of positive cash-related operating income items as a significant component of the net loss during 2009 was the provision for loan losses, a decrease in the fair value of derivatives, and provision for foreclosure and repurchase obligations, which are all non-cash expense
items. In 2008, cash flows from operating activities were $4.3 billion and were driven by a $2.9 billion decline in the size of the mortgage warehouse when compared with 2007 and also, the impact of non-cash related expenses during the period.
Negative cash flows provided by financing activities were $3.6 billion during 2009. Cash flows provided by short-term borrowings declined to $2.4 billion primarily due to a reduction in borrowings from the Federal Reserve TAF in 2009. Additionally, funding from long-term debt declined by $1.8 billion from 2008 as
a significant amount of FHNs bank notes matured during 2009 and $.2 billion were repurchased. The need for cash flows from financing activities has decreased during 2009 consistent with the $5.0 billion decline in period-end total assets and also due to a $.6 billion increase in deposits. During 2008, negative
cash flows from financing activities were $5.4 billion as cash providing by deposits, short-term borrowings, and long-term debt declined. FHNs common stock offering and preferred shares issued through the CPP generated a combined $1.5 billion in cash proceeds during 2008. Net negative cash flows were $.4
billion during 2009 compared with net negative cash flows of $.9 billion during 2008. Negative cash flows from financing activities more than offset positive cash flows from investing and operating activities for both periods.
Off-balance Sheet Arrangements and Other Contractual Obligations
First Horizon Home Loans, the former mortgage banking division of FHN, originated conventional conforming and federally insured single-family residential mortgage loans. Likewise, FTN Financial Capital Assets Corporation purchases the same types of loans from customers. Substantially all of these mortgage loans
were exchanged for securities, which are issued through investors, including government sponsored enterprises (GSE), such as Government National Mortgage Association (GNMA) for federally insured loans and Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation
(FHLMC) for conventional loans, and then sold in the secondary markets. Each GSE has specific guidelines and criteria for sellers and servicers of loans backing their respective securities. The risk of credit loss with regard to the principal amount of the loans sold was generally transferred to investors upon sale
to the secondary market. However, for loans sold without recourse, if it was determined that previously transferred loans did not meet the agreed upon qualifications or criteria within the sales contract, the purchaser had the right to return those loans to FHN or pursue a make-whole arrangement with FHN.
For repurchase requests (the pipeline) related to breach of contract, the pipeline is segregated into various components (e.g., requestor, repurchase, or make-whole) and current rescission and loss severity rates are applied to calculate estimated losses attributable to the current pipeline. As of December 31,
2009, FHN has observed loss severities ranging between 50 percent and 60 percent of the principal balance of the repurchased loans and rescission rates between 30 percent and 40 percent of the repurchase and make-whole requests. FHN then compares the estimated losses inherent within the pipeline with
current reserve levels. On December 31, 2009, the pipeline was $256.0 million with over half of such claims submitted by Fannie Mae. Management considered the rising level of repurchase requests when determining the adequacy of the repurchase and foreclosure reserve. Although the pipeline of requests has
been increasing, FHN also considered that a majority of these sales ceased in third quarter 2008 when FHN sold its national mortgage origination business. Uncertainty exists in accurately
36
FIRST HORIZON NATIONAL CORPORATION
determining the reserve due to incomplete knowledge regarding the status of investors reviews. Additionally, since FHN has sold a significant portion of its servicing rights associated with prior agency loan sales, management has limited insight into the performance and/or potential subsequent refinancing of many of
the loans covered by its representations and warranties. FHN has received the greatest amount of repurchase or make-whole claims, and associated losses, related to loans that were sold during 2007. The 2007 vintage is approximately 60 percent of the pipeline as of December 31, 2009.
In addition, certain mortgage loans were sold to investors with limited or full recourse in the event of mortgage foreclosure (refer to discussion of repurchase and foreclosure reserves under Critical Accounting Policies). After sale, these loans were not reflected on the Consolidated Statements of Condition. See also
Note 18 Restrictions, Contingencies, and Other Disclosures.
FHNs use of government agencies as an efficient outlet for mortgage loan production was an essential source of liquidity for FHN and other participants in the housing industry in recent years. The use of origination and subsequent sale or securitization of these loans to government agencies has significantly
declined due to FHNs sale of national mortgage origination offices in third quarter 2008. Consequently, sales of these loans during 2009 were immaterial. During 2008, approximately $15.6 billion of conventional and federally insured mortgage loans were securitized and sold by FHN through these investors.
Historically, certain of FHNs originated loans, including non-conforming first lien mortgages, second lien mortgages and HELOC, did not conform to the requirements for sale or securitization through government agencies. FHN pooled and securitized these non-conforming loans in proprietary transactions. After
securitization and sale, these loans were no longer reflected on the Consolidated Statements of Condition. These transactions, which were conducted through single-purpose business trusts, were an efficient way for FHN to monetize these assets. On December 31, 2009 and 2008, the outstanding principal amount
of loans in these off-balance sheet business trusts was $18.3 billion and $22.8 billion, respectively. FHN has substantially reduced its origination of these loans in response to disruptions in the credit markets and did not execute a securitization of these loans during 2009 or 2008. Given the historical significance of
FHNs origination of non-conforming loans, the use of single-purpose business trusts to securitize these loans was an important source of liquidity to FHN. See Note 23 Loan Sales and Securitizations for additional information.
FHN has also sold HELOC and second lien mortgages without recourse through whole loan sales. In third quarter 2009, FHN settled a substantial portion of its repurchase obligations related to these sales through an agreement with the primary purchaser of HELOC and second lien loans that were previously
transferred through whole loan sales. This settlement included the transfer of retained servicing rights associated with the applicable prior second lien and HELOC loan sales. As a result, the remaining repurchase obligation is minimal.
A wholly-owned subsidiary of FHN has agreements with several providers of private mortgage insurance whereby the subsidiary has agreed to accept insurance risk for specified loss corridors for loans originated in each contract year in exchange for a portion of the private mortgage insurance premiums paid by
borrowers (i.e., reinsurance arrangements). The loss corridors vary for each primary insurer for each contract year. No new reinsurance arrangements were initiated after 2008. In 2009, FHN agreed to settle certain of its reinsurance obligations with the primary insurers, resulting in a decrease in the reserve balance
and a transfer of the associated trust assets. As of December 31, 2009, FHN has reserved $29.3 million for its estimated liability under the reinsurance arrangements. In accordance with the terms of the contracts with the primary insurers, as of December 31, 2009, FHN has placed $44.0 million of prior premium
collections in trust for payment of claims arising under the reinsurance arrangements. Also, as of December 31, 2009, $12.1 million of these funds were allocated for future delivery to primary insurers for completion of existing settlement arrangements.
Pension obligations are funded by FHN to provide current and future benefit to participants in FHNs noncontributory, defined benefit pension plan. On December 31, 2009, the annual measurement date, pension obligations, including obligations of the unfunded plans, were $533.5 million with $496.3 million of
assets in the trust to fund those obligations. As of December 31, 2009, pension plan assets exceeded the obligations of the qualified pension plan. FHN made a contribution of $50.0 million to the qualified pension plan in 2009. Any future contributions will be based upon pension funding requirements under the
Pension Protection Act, the maximum deductible under the Internal Revenue Code, and the actual performance of plan assets during 2010. Currently,
37
FIRST HORIZON NATIONAL CORPORATION
FHN does not anticipate making additional contributions to the pension plan during 2010. The nonqualified pension plans and other postretirement benefit plans are unfunded. FHN contributed $6.7 million in 2009 to the unfunded plans to cover all benefits paid under the nonqualified plans and anticipates the
2010 contribution to be $4.9 million. The discount rate for 2009 of 6.05 percent for the qualified pension plan and 5.55 percent for the nonqualified supplemental executive retirement plan was determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from
one-half to thirty years. The discount rates for the pension and nonqualified supplemental executive retirement plans are selected based on data specific to FHNs plans and employee population. Beginning in 2013, FHN will no longer accrue service expense for future benefits in the qualified pension plan. Benefits
accrued through December 31, 2012, for current participants will not be reduced or affected. Instead, FHN will commence a new program for service beyond 2013 through an increased match to the Savings Plan. See Note 19 Savings, Pension, and Other Employee Benefits for additional information.
FHN has various other financial obligations, which may require future cash payments. Table 15 sets forth contractual obligations representing required and potential cash outflows as of December 31, 2009. Purchase obligations represent obligations under agreements to purchase goods or services that are
enforceable and legally binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. In addition, FHN enters into commitments to extend credit to borrowers, including loan
commitments, standby letters of credit, and commercial letters of credit. These commitments do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.
38
FIRST HORIZON NATIONAL CORPORATION
Table 15 - Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Payments due by period (a) |
|
Less than 1 year |
|
1-3 years |
|
4-5 years |
|
After 5 years |
|
Total |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
Time deposit maturities (b) |
|
|
$ |
|
1,572,729 |
|
|
|
$ |
|
473,939 |
|
|
|
$ |
|
328,088 |
|
|
|
$ |
|
81,180 |
|
|
|
$ |
|
2,455,936 |
|
Long-term debt (c) |
|
|
|
148,651 |
|
|
|
|
549,252 |
|
|
|
|
350,302 |
|
|
|
|
1,739,638 |
|
|
|
|
2,787,843 |
|
Annual rental commitments under noncancelable leases (d) |
|
|
|
32,025 |
|
|
|
|
43,017 |
|
|
|
|
23,252 |
|
|
|
|
30,943 |
|
|
|
|
129,237 |
|
Purchase obligations |
|
|
|
71,914 |
|
|
|
|
70,975 |
|
|
|
|
8,303 |
|
|
|
|
1,994 |
|
|
|
|
153,186 |
|
|
Total contractual obligations |
|
|
$ |
|
1,825,319 |
|
|
|
$ |
|
1,137,183 |
|
|
|
$ |
|
709,945 |
|
|
|
$ |
|
1,853,755 |
|
|
|
$ |
|
5,526,202 |
|
|
|
(a) |
|
|
|
Excludes a $30.0 million liability for unrecognized tax benefits as the timing of payment cannot be reasonably estimated. |
|
(b) |
|
|
|
See Note 8 Time Deposit Maturities for further details. |
|
(c) |
|
|
|
See Note 10 Long-Term Debt for further details. |
|
(d) |
|
|
|
See Note 5 Premises, Equipment, and Leases for further details.
|
Credit Ratings
Maintaining adequate credit ratings on debt issues and preferred stock is critical to liquidity because it affects the ability of FHN to attract funds, such as brokered deposits or wholesale borrowings, from various sources on a cost-competitive basis. On December 31, 2009 and 2008, FHN had $1.7 billion and $2.1
billion, respectively, from these funding sources (see also Liquidity Management). The various credit ratings are detailed in Table 16. The availability and cost of funds other than core deposits is also dependent upon marketplace perceptions of the financial soundness of FHN, which include such issues as capital
levels, asset quality, and reputation. The availability of core deposit funding is stabilized by federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources.
Table 16 - Credit Ratings
|
|
|
|
|
|
|
|
|
Standard & Poors (a) |
|
Moodys (b) |
|
Fitch (c) |
|
First Horizon National Corporation |
|
|
|
|
|
|
Overall credit rating: Long-term/Outlook |
|
BBB/Negative |
|
Baa1/Negative |
|
BBB+/Negative |
Subordinated debt |
|
BB+ |
|
Baa2 |
|
BBB |
Cumulative perpetual preferred stock (issued to US Treasury) |
|
|
|
|
|
BBB |
Capital securities (d) |
|
B+ |
|
Baa3 |
|
BBB |
|
First Tennessee Bank National Association |
|
|
|
|
|
|
Overall credit rating: Long-term/Short-term/Outlook |
|
BBB/A-2/Negative |
|
A3/P-2/Negative |
|
BBB+/F2/Negative |
Non-cumulative perpetual preferred stock |
|
BB |
|
Baa3 |
|
BBB |
Long-term/short-term deposits |
|
BBB/A-2 |
|
A3/P-2 |
|
A-/F1 |
Other long-term/short-term funding (e) |
|
BBB/A-2 |
|
A3/P-2 |
|
BBB+/F2 |
Subordinated debt |
|
BBB |
|
Baa1 |
|
BBB |
|
FT Real Estate Securities Company, Inc. |
|
|
|
|
|
|
Preferred stock |
|
BB |
|
Baa2 |
|
|
|
A rating is not a recommendation to buy, sell, or hold securities and is subject to revision or withdrawal at any time and should be evaluated independently of any other rating.
|
(a) |
|
|
|
Last change in rating was on April 23, 2009. |
|
(b) |
|
|
|
Last change in rating was on February 17, 2010. |
|
(c) |
|
|
|
Last change in rating was on December 3, 2008. |
|
(d) |
|
|
|
Guaranteed preferred beneficial interests in First Horizons junior subordinated debentures issued through a wholly-owned unconsolidated business trust. |
|
(e) |
|
|
|
Other funding includes senior bank notes.
|
39
FIRST HORIZON NATIONAL CORPORATION
MARKET RISK MANAGEMENT
Capital markets buys and sells various types of securities for its customers. When these securities settle on a delayed basis, they are considered forward contracts. Securities inventory positions are generally procured for distribution to customers by the sales staff, and ALCO policies and guidelines have been
established with the objective of limiting the risk in managing this inventory.
CAPITAL MANAGEMENT
The capital management objectives of FHN are to provide capital sufficient to cover the risks inherent in FHNs businesses, to maintain excess capital to well-capitalized standards and to assure ready access to the capital markets. The Capital Management committee, chaired by the Executive Vice President of
Funds Management and Corporate Treasurer, is responsible for capital management oversight and provides a forum for addressing management issues related to capital adequacy. The committee reviews sources and uses of capital, key capital ratios, segment economic capital allocation methodologies, and other
factors in monitoring and managing current capital levels, as well as potential future sources and uses of capital. The committee also recommends capital management policies, which are submitted for approval to the Enterprise-wide Risk/Return Management Committee and the Board.
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss from inadequate or failed internal processes, people, and systems or from external events. This risk is inherent in all businesses. Management, measurement, and reporting of operational risk are overseen by the Operational Risk Committee, which is chaired by the Chief Risk
Officer. Key representatives from the business segments, legal, risk management, information technology risk, corporate real estate, employee services, records management, bank operations, funds management, and insurance are represented on the committee. Subcommittees manage and report on business
continuity planning, information technology risk, insurance, records management, customer complaints, and reputation risks. Summary reports of the committees activities and decisions are provided to the Enterprise-wide Risk/Return Management Committee. Emphasis is dedicated to refinement of processes and
tools to aid in measuring and managing material operational risks and providing for a culture of awareness and accountability.
COMPLIANCE RISK MANAGEMENT
Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to banking activities. Management, measurement, and reporting of
compliance risk are overseen by the Compliance Risk Committee, which is chaired by the SVP of Corporate Compliance. Key executives from the business segments, legal, risk management, and service functions are represented on the committee. Summary reports of the committees activities and decisions are
provided to the Enterprise-wide Risk/Return Management Committee and to the Audit Committee of the Board, as applicable. Reports include the status of regulatory activities, internal compliance program initiatives, and evaluation of emerging compliance risk areas.
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss due to adverse changes in a borrowers or counterpartys ability to meet its financial obligations under agreed upon terms. FHN is subject to credit risk in lending, trading, investing, liquidity/funding, and asset management activities. The nature and amount of credit risk depends on the
types of transactions, the structure of those transactions and the parties involved. In general, credit risk is incidental to trading, liquidity/funding and asset management activities, while it is central to the profit strategy in lending. As a result, the majority of credit risk is associated with lending activities.
FHN assesses and manages credit risk through a series of policies, processes, measurement systems, and controls. The Credit Risk Management Committee (CRMC) is responsible for overseeing the management of existing and emerging credit risks in the company within the broad risk tolerances established by
the Board of Directors. The Credit Risk Management function, led by the Chief Credit Officer, provides strategic and tactical
40
FIRST HORIZON NATIONAL CORPORATION
credit leadership by maintaining policies, oversees credit approval and servicing, and manages portfolio composition and performance.
A series of regularly scheduled portfolio review meetings are in place to provide oversight regarding the accuracy of credit risk grading and the adequacy of commercial credit servicing. A series of watch list meetings are in place to oversee the management of emerging potential problem commercial assets. The
Credit Risk Management function assesses the portfolio trends and the results of these meetings and utilizes this information to inform management regarding the current state of credit quality and as a factor of the estimation process for determining the allowance for loan losses.
All of the above activities are subject to independent review by FHNs Credit Risk Assurance Group. The EVP of Credit Risk Assurance is appointed by and reports to the Credit Policy & Executive Committee of the Board. Credit Risk Assurance is charged with providing the Board and executive management with
independent, objective, and timely assessments of FHNs portfolio quality, credit policies, and credit risk management processes.
Management strives to identify potential problem loans and nonperforming loans early enough to correct the deficiencies and prevent further credit deterioration. It is managements objective that both charge-offs and asset write-downs are recorded promptly, based on managements assessments of the borrowers
ability to repay and current collateral values.
Loan Portfolio Composition and Concentrations
Generally, FHN groups its loans into seven different portfolios based on internal classifications. The ALLL is established at this individual portfolio level and asset quality data is measured and reviewed for each of these portfolios. Commercial loans are composed of the Commercial, Industrial, and Other (C&I), the
Income-Producing Commercial Real Estate (Income CRE), and the Residential Commercial Real Estate Construction (Residential CRE) portfolios. Retail loans are composed of Consumer Real Estate, Residential Consumer Real Estate Construction (OTC), Permanent Mortgage, and the Credit Card and Other
portfolios. Key asset quality metrics for each of these portfolios can be found in Table 22. The following is a description of each portfolio:
C&I
The C&I portfolio was $7.2 billion as of December 31, 2009. This portfolio is comprised of loans used for general business purposes, diversified by industry type, and primarily composed of relationship customers in Tennessee managed within the regional bank. Typical products include working capital lines of credit,
term loan financing of owner-occupied real estate and fixed assets, and trade credit enhancement through letters of credit. FHN has significant portfolios in categories of manufacturing, finance and insurance, wholesale trade, and construction. The finance and insurance subsection of this portfolio, including bank-
related and trust preferred loans (including loans to bank and insurance-related businesses), has experienced stress due to the higher credit losses encountered throughout the financial services industry, limited availability of market liquidity, and the impact from economic conditions on these borrowers. On
December 31, 2009, 10 percent of the C&I portfolio, or 4 percent of total loans, was composed of bank-related and trust preferred loans that had combined reserves and LOCOM valuation allowance of 17.34 percent.
Income CRE
The Income CRE portfolio was $1.8 billion on December 31, 2009. This portfolio contains loans, lines, and letters of credit to commercial real estate developers for the construction and mini-permanent financing of income-producing real estate. Major subcategories of Income CRE include retail, office, apartments,
hospitality, and industrial. Poor economic conditions have affected this portfolio through increased vacancies, rate of stabilization, decreased rental rates, lack of readily available financing in the industry, and declining property valuations. Approximately 80 percent of this portfolio was originated through the Regional
Bank.
41
FIRST HORIZON NATIONAL CORPORATION
Residential CRE
The Residential CRE portfolio was $.6 billion on December 31, 2009. This portfolio includes loans to residential builders and developers for the purpose of constructing single-family detached homes, condominiums, and town homes. FHN lends to finance vertical construction of these properties as well as the
acquisition and development of the related land. Originations through national construction lending ceased in 2008 and balances have decreased by 50 percent since the end of 2008. Performance of this portfolio has been severely stressed due to the devastated housing market.
Consumer Real Estate
The consumer real estate portfolio was $6.9 billion on December 31, 2009, and is primarily composed of home equity lines and installment loans. This portfolio is geographically diverse with strong borrower FICO scores. Deterioration is primarily in areas with significant home price depreciation and is affected by
poor economic conditions primarily unemployment. Approximately two-thirds of this portfolio was originated through national channels.
Permanent Mortgage
The permanent mortgage portfolio was $1.1 billion on December 31, 2009. This portfolio is primarily composed of OTC completed construction loans and jumbo mortgages. This portfolio has experienced increased delinquencies and loss severities during 2009. The portfolio is somewhat geographically diverse with
20 percent of loan balances in California. Poor performance was affected by economic conditions, primarily depressed retail real estate values and elevated unemployment.
OTC
The OTC portfolio was $.2 billion on December 31, 2009 and has declined by 77 percent since the end of 2008 with new originations ceasing in early 2008. OTC product is construction to permanent financing (see Permanent Mortgage discussion above) with short durations. This portfolios poor performance is
driven by the slumping housing market, borrower stress, and lack of salability in the secondary market.
Credit Card and Other
The credit card and other portfolio was $.3 billion on December 31, 2009 and primarily includes credit card receivables, automobile loans, and other consumer related credits. While charge-offs have increased since 2008, this portfolio is immaterial to the overall loan portfolio.
Concentrations
FHN has a significant concentration of loans secured by residential real estate (49 percent of total loans), the majority of which is in the retail real estate residential portfolio including real estate loans pledged against other collateralized borrowings (44 percent of total loans). This portfolio is primarily comprised of
home equity lines and loans. While this portfolio has been stressed by the downturn in the housing market and rising unemployment, it contains loans extended to borrowers with high credit scores and is geographically diversified. Most of the remaining residential real estate loans are in the winding-down national
construction portfolios (5 percent of total loans) whose exposures have been significantly reduced since 2008.
On December 31, 2009, FHN did not have any concentrations of Commercial, Financial, and Industrial loans in any single industry of 10 percent or more of total loans.
Allowance for Loan Losses
Managements policy is to maintain the allowance for loan losses (ALLL) at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. The adequacy of the
allowance for loan losses is analyzed quarterly. Management has the responsibility for performing a comprehensive review of the allowance for
42
FIRST HORIZON NATIONAL CORPORATION
loan losses and reviewing the results of the analysis with the Credit Policy and Executive Committee of the Board each quarterly reporting period. The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the ALLL at a sufficient level reflecting managements
estimate of probable incurred losses in the loan portfolio. Analytical models based on loss experience subject to adjustment to reflect current events, trends, and conditions (including economic considerations and trends) are used by management to determine the amount of provision to be recognized and to assess
the adequacy of the loan loss allowance. The nature of the process by which FHN determines the appropriate ALLL requires the exercise of considerable judgment. See Critical Accounting Policies for more detail. After review of all relevant factors, management believes the allowance for loan losses is adequate and
reflects its best estimate of probable incurred losses as of December 31, 2009. The provision for loan losses decreased 19 percent to $880.0 million in 2009 from $1.1 billion in 2008. While FHNs exposure to the national portfolios (especially construction) has significantly declined since 2008, incremental
deterioration was experienced in the other portfolios, including Income CRE and certain components of the C&I portfolio.
Table 19 summarizes, by category, loans charged-off, and recoveries of loans previously charged-off, net charge-off ratios, and additions to the ALLL through provision. The total allowance for loan losses increased to $896.9 million on December 31, 2009, from $849.2 million at December 31, 2008. The ratio of
allowance for loan losses to loans, net of unearned income, was 4.95 percent on December 31, 2009, compared to 3.99 percent on December 31, 2008, and 1.55 percent on December 31, 2007. The increase in 2009 reflects a 6 percent increase in the ALLL (the numerator) combined with a 15 percent decline
in period-end loans (the denominator).
Components of the Allowance for Loan Losses
The ALLL includes the following components: reserves for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous retail and commercial loans, both determined in accordance with the ASC Topic related to Contingencies (ASC 450-20-50). The
reserve factors applied to these pools are an estimate of probable incurred losses based on managements evaluation of historical net losses from loans with similar characteristics. Also included are reserves, determined in accordance with the Receivables Topic (ASC 310-10-45), for loans determined by
management to be individually impaired.
To assess the quality of individual commercial loans, commercial loans are internally assigned a credit grade based on a system that assigns credit grades ranging from 1 to 16. This credit grading system is intended to identify and measure the credit quality of the loan portfolio by analyzing the migration of loans
between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses since an allowance is established for pools of commercial loans based on the credit grade assigned. The appropriate relationship manager performs the process of categorizing commercial
loans into the appropriate credit grades, initially as a component of the approval of the loan, and subsequently throughout the life of the loan as part of our servicing regimen. The proper loan grade for larger exposures is confirmed by a senior credit officer in the approval process. To determine the most
appropriate credit grade for each loan, FHN utilizes a credit risk grading system that employs scorecards for particular categories of loans. The scorecards consist of a number of objective and subjective measures that are weighted in a manner that produces a rank ordering of risk within pass-graded credits. Loan
grades are frequently reviewed by Credit Risk Assurance to determine if the above process continues to result in accurate loan grading across the portfolio.
During 2009, management developed and utilized an Average Loss Rate Model (ALR) to establish commercial portfolio reserve rates. ALR is a grade migration-based approach that allows for robust segmentation and dynamic time period consideration. In comparison with the prior commercial reserve rate process,
ALR is more sensitive to current portfolio conditions and provides management with additional detailed analysis into historical portfolio net loss experience. Consistent with the preceding approach, these reserve rates are then subject to management adjustment to reflect current events, trends and conditions
(including economic considerations and trends) that affect the asset quality of the commercial loan portfolio. While the change to the ALR model improves visibility into the impact of current portfolio conditions, the results of the model change, after consideration of management adjustments employed in both
processes, were immaterial.
The ALLL for smaller-balance homogenous loans (retail loans) is determined based on pools of similar loan types that have similar credit risk characteristics, which is consistent with industry practice. FHN manages retail loan
43
FIRST HORIZON NATIONAL CORPORATION
credit risk on a portfolio basis. Reserves by portfolio are determined using analytical models that incorporate various factors including, but not limited to, historical delinquency trends, experienced loss frequencies, and experienced loss severities. Generally, reserves for retail loans reflect inherent losses in the
portfolio that are expected to be recognized over the following twelve months.
FHN employs a dual-grade commercial risk grading methodology to assign a probability of default (PD) estimate and loss given default. The methodology utilizes multiple scorecards that have been developed using a combination of objective and subjective factors specific to various portfolios segments that result
in a rank ordering of risk and the assignment of grades PD 1 to PD 16. Each grade corresponds to an estimated one-year default probability percentage; a PD 1 has the lowest expected default probability, and probabilities increase as grades progress down the scale. PD 1 through PD 11 are pass grades. PD 12
is referred to as the pass-watch grade and is assigned when a credit is judged to need additional attention. PD 13-16 corresponds to the regulatory-defined categories of special mention (13), substandard (14), doubtful (15), and loss (16). Table 17 gives a breakdown of the ALLL allocation by major loan types
and commercial loan grades on December 31, 2009, compared with December 31, 2008.
Table 17 - Loans and Allowance for Loan Loss on December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
2008 |
|
C&I and Other |
|
Income CRE |
|
Residential CRE |
|
Total |
|
% of Total |
|
Allowance for Loan Losses |
|
Total |
|
% of Total |
|
Allowance for Loan Losses |
|
Internal grades: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
$ |
|
74 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
74 |
|
|
|
|
- |
% |
|
|
|
$ |
|
- |
|
|
|
$ |
|
135 |
|
|
|
|
- |
% |
|
|
|
$ |
|
1 |
|
2 |
|
|
|
36 |
|
|
|
|
4 |
|
|
|
|
- |
|
|
|
|
40 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
10 |
|
|
|
|
- |
|
|
|
|
- |
|
3 |
|
|
|
73 |
|
|
|
|
8 |
|
|
|
|
- |
|
|
|
|
81 |
|
|
|
|
- |
|
|
|
|
1 |
|
|
|
|
161 |
|
|
|
|
1 |
|
|
|
|
1 |
|
4 |
|
|
|
207 |
|
|
|
|
13 |
|
|
|
|
- |
|
|
|
|
220 |
|
|
|
|
1 |
|
|
|
|
1 |
|
|
|
|
306 |
|
|
|
|
1 |
|
|
|
|
3 |
|
5 |
|
|
|
412 |
|
|
|
|
31 |
|
|
|
|
1 |
|
|
|
|
444 |
|
|
|
|
2 |
|
|
|
|
4 |
|
|
|
|
549 |
|
|
|
|
3 |
|
|
|
|
6 |
|
6 |
|
|
|
494 |
|
|
|
|
77 |
|
|
|
|
- |
|
|
|
|
571 |
|
|
|
|
3 |
|
|
|
|
5 |
|
|
|
|
748 |
|
|
|
|
4 |
|
|
|
|
8 |
|
7 |
|
|
|
1,063 |
|
|
|
|
114 |
|
|
|
|
4 |
|
|
|
|
1,181 |
|
|
|
|
7 |
|
|
|
|
14 |
|
|
|
|
1,175 |
|
|
|
|
6 |
|
|
|
|
12 |
|
8 |
|
|
|
1,211 |
|
|
|
|
213 |
|
|
|
|
13 |
|
|
|
|
1,437 |
|
|
|
|
8 |
|
|
|
|
24 |
|
|
|
|
1,476 |
|
|
|
|
7 |
|
|
|
|
16 |
|
9 |
|
|
|
734 |
|
|
|
|
178 |
|
|
|
|
6 |
|
|
|
|
918 |
|
|
|
|
5 |
|
|
|
|
20 |
|
|
|
|
1,209 |
|
|
|
|
6 |
|
|
|
|
13 |
|
10 |
|
|
|
463 |
|
|
|
|
61 |
|
|
|
|
2 |
|
|
|
|
526 |
|
|
|
|
3 |
|
|
|
|
12 |
|
|
|
|
765 |
|
|
|
|
4 |
|
|
|
|
9 |
|
11 |
|
|
|
536 |
|
|
|
|
149 |
|
|
|
|
10 |
|
|
|
|
695 |
|
|
|
|
4 |
|
|
|
|
26 |
|
|
|
|
1,131 |
|
|
|
|
5 |
|
|
|
|
21 |
|
12 |
|
|
|
314 |
|
|
|
|
97 |
|
|
|
|
8 |
|
|
|
|
419 |
|
|
|
|
2 |
|
|
|
|
27 |
|
|
|
|
439 |
|
|
|
|
2 |
|
|
|
|
15 |
|
13 |
|
|
|
834 |
|
|
|
|
271 |
|
|
|
|
45 |
|
|
|
|
1,150 |
|
|
|
|
7 |
|
|
|
|
102 |
|
|
|
|
1,466 |
|
|
|
|
6 |
|
|
|
|
96 |
|
14, 15, 16 (Classifieds) |
|
|
|
596 |
|
|
|
|
388 |
|
|
|
|
315 |
|
|
|
|
1,299 |
|
|
|
|
8 |
|
|
|
|
225 |
|
|
|
|
1,052 |
|
|
|
|
5 |
|
|
|
|
179 |
|
|
|
|
|
|
7,047 |
|
|
|
|
1,604 |
|
|
|
|
404 |
|
|
|
|
9,055 |
|
|
|
|
50 |
|
|
|
|
461 |
|
|
|
|
10,622 |
|
|
|
|
50 |
|
|
|
|
380 |
|
Individually impaired loans |
|
|
|
104 |
|
|
|
|
170 |
|
|
|
|
235 |
|
|
|
|
509 |
|
|
|
|
3 |
|
|
|
|
21 |
|
|
|
|
474 |
|
|
|
|
2 |
|
|
|
|
12 |
|
|
Total commercial loans |
|
|
$ |
|
7,151 |
|
|
|
$ |
|
1,774 |
|
|
|
$ |
|
639 |
|
|
|
$ |
|
9,564 |
|
|
|
|
53 |
% |
|
|
|
$ |
|
482 |
|
|
|
$ |
|
11,096 |
|
|
|
|
52 |
% |
|
|
|
$ |
|
392 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer real estate (Home Equity Installment and HELOC)* |
|
|
$ |
|
6,931 |
|
|
|
|
38 |
% |
|
|
|
$ |
|
215 |
|
|
|
$ |
|
7,749 |
|
|
|
|
36 |
% |
|
|
|
$ |
|
182 |
|
OTC (Consumer Residential Construction Loans) |
|
|
|
229 |
|
|
|
|
1 |
|
|
|
|
62 |
|
|
|
|
981 |
|
|
|
|
5 |
|
|
|
|
200 |
|
Permanent mortgage |
|
|
|
1,086 |
|
|
|
|
6 |
|
|
|
|
124 |
|
|
|
|
1,127 |
|
|
|
|
5 |
|
|
|
|
54 |
|
Credit card and other |
|
|
|
314 |
|
|
|
|
2 |
|
|
|
|
14 |
|
|
|
|
325 |
|
|
|
|
2 |
|
|
|
|
21 |
|
|
Total consumer loans |
|
|
|
|
|
|
|
|
|
8,560 |
|
|
|
|
47 |
|
|
|
|
415 |
|
|
|
|
10,182 |
|
|
|
|
48 |
|
|
|
|
457 |
|
|
Total loans |
|
|
|
|
|
|
|
|
$ |
|
18,124 |
|
|
|
|
100 |
% |
|
|
|
$ |
|
897 |
|
|
|
$ |
|
21,278 |
|
|
|
|
100 |
% |
|
|
|
$ |
|
849 |
|
|
Loans are expressed net of unearned income. All data is based on internal loan classifications.
* Includes real estate loans pledged against other collateralized borrowings.
44
FIRST HORIZON NATIONAL CORPORATION
Table 18 - Reserve Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
ALLL/ Loans % |
|
Period End Loans % of Total |
|
ALLL/ Loans % |
|
Period End Loans % of Total |
|
ALLL/ Loans % |
|
Period End Loans % of Total |
|
ALLL/ Loans % |
|
Period End Loans % of Total |
|
ALLL/ Loans % |
|
Period End Loans % of Total |
|
Total commercial loans |
|
|
|
5.04 |
% |
|
|
|
|
53 |
% |
|
|
|
|
3.53 |
% |
|
|
|
|
52 |
% |
|
|
|
|
2.00 |
% |
|
|
|
|
51 |
% |
|
|
|
|
1.43 |
% |
|
|
|
|
50 |
% |
|
|
|
|
1.36 |
% |
|
|
|
|
48 |
% |
|
Consumer real estate (Home Equity and HELOC) (a) |
|
|
|
3.10 |
|
|
|
|
38 |
|
|
|
|
2.35 |
|
|
|
|
36 |
|
|
|
|
0.56 |
|
|
|
|
36 |
|
|
|
|
0.46 |
|
|
|
|
39 |
|
|
|
|
0.44 |
|
|
|
|
41 |
|
Permanent mortgage (a) |
|
|
|
11.41 |
|
|
|
|
6 |
|
|
|
|
4.76 |
|
|
|
|
5 |
|
|
|
|
0.20 |
|
|
|
|
2 |
|
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
|
N/A |
|
OTC (Consumer Residential Construction Loans) |
|
|
|
26.85 |
|
|
|
|
1 |
|
|
|
|
20.44 |
|
|
|
|
5 |
|
|
|
|
2.99 |
|
|
|
|
9 |
|
|
|
|
0.34 |
|
|
|
|
9 |
|
|
|
|
0.21 |
|
|
|
|
9 |
|
Credit card and other |
|
|
|
4.45 |
|
|
|
|
2 |
|
|
|
|
6.60 |
|
|
|
|
2 |
|
|
|
|
3.44 |
|
|
|
|
2 |
|
|
|
|
3.02 |
|
|
|
|
2 |
|
|
|
|
3.34 |
|
|
|
|
2 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Prior to 2007, permanent mortgage balances were included in consumer real estate.
The reserve rate for commercial loans increased to 5.04 percent in 2009 from 3.53 in percent in 2008 reflecting incremental deterioration primarily in the commercial real estate portfolio and also in bank-related and trust preferred loans. The ALLL to period-end loans for the consumer real estate portfolio increased
to 3.10 percent from 2.35 percent during 2009 as a result of poor economic conditions, increased unemployment, and declining residential real estate collateral values. Permanent mortgage loans experienced both incremental deterioration and increased loss severities which resulted in an ALLL to loans ratio of
11.41 percent in 2009 compared to 4.76 percent during 2008. At December 31, 2009, the OTC portfolio had a reserve rate of 26.85 percent but only represented 1 percent of total loans as a significant amount of this portfolio has been reduced. This elevated reserve rate reflects a significant percentage of this
portfolio that is nonperforming. The reserve rate for credit card and other loans, which represented only 2 percent of total loans in 2009, was 4.45 percent for 2009 compared to 6.60 percent for 2008.
Net Charge-offs
Net charge-offs increased to $832.3 million for the year ended December 31, 2009, an increase from $572.8 million in 2008 and $131.8 million in 2007. The ALLL was 1.08 times net charge-offs in 2009 compared with 1.48 times net charge-offs in 2008. The net charge-offs to average loans ratio increased from
2.64 percent to 4.25 percent in 2009 as net charge-offs increased and average loans decreased from the prior period. The increase in the level of net charge-offs from 2008 is attributable to higher loan losses experienced within all portfolios with 63 percent of the increase in losses occurring within the retail
portfolios.
Commercial, financial, and industrial (C&I) net charge-offs were $121.7 million in 2009 compared to $101.1 million in 2008, as the weakening economy impacted commercial credits. Commercial real estate construction and real estate commercial net charge-offs increased to $266.7 million in 2009 from $191.1
million in 2008 as losses in the Income CRE portfolio emerged and Residential CRE portfolio continued. During 2009, a substantial amount of the commercial real estate charge-offs were related to homebuilder construction lending products that were originated through the national platform. The balances of these
loans have significantly declined since 2008 and future loss exposure to these loans is expected to be reduced.
The retail real estate portfolios, which include home equity lines and installment loans (home equity and permanent mortgages) experienced deterioration and higher net charge-offs in 2009. Installment loans (including permanent mortgages) net charge-offs increased to $146.3 million in 2009 from $45.6 million in
2008 and HELOC net charge-offs increased to $124.5 million in 2009 from $77.4 million in 2008. Elevated unemployment and depressed collateral values are significant drivers in the increase in losses from 2008. Generally, HELOC and home equity installment loans originated through the Regional Bank performed
better than those originated through the national platform. OTC net charge-offs increased slightly to $155.2 million in 2009 compared to $141.3 million as a large portion of this wind-down portfolio was worked through. Credit card receivables and all other consumer loans net charge-offs increased to $17.9 million
in 2009 from $16.0 million in 2008 as the decline in the economy impacted consumers financial condition.
While total charge-offs increased due to adverse economic conditions, FHNs methodology of charging down collateral dependent commercial loans to net realizable value (NRV), fair value less costs to sell, also impacted
45
FIRST HORIZON NATIONAL CORPORATION
charge-off trends, especially in comparison to applicable ALLL. Generally, classified nonaccrual loans over $1 million are deemed to be individually impaired in accordance with ASC 310-10-45 and are assessed for impairment measurement. The majority (79 percent) of these individually impaired loans are
considered to be collateral dependent, and therefore, are immediately written down to NRV with the amount of the impairment charged-off instead of carrying reserves. Collateral values are monitored and further charge-offs are taken if it is determined that the collateral values have continued to decline.
Also impacting increased charge-offs related to individually impaired loans are the declines in collateral values experienced due to real estate market conditions. Therefore, charge-offs are not only higher due to the increased credit deterioration related to these loans, but also due to the increased rate at which loans
are charged down to NRV because of declining collateral values. Net charge-offs related to collateral dependent individually impaired loans were $287.9 million, or 35 percent, of total net charge-offs during 2009. Because of the accelerated recognition of impairment of these loans, the elevated charge-offs decrease
the ALLL. Compression occurs in the ALLL to net charge-offs ratio as the ALLL is generally not replenished for charge-offs related to individually impaired collateral dependent loans because reserves are not carried for these loans.
Additionally, OTC loans are generally written down to appraised value if, when the loan becomes 90 days past due or is considered substandard, recently obtained appraisals indicate a decline in fair value. Subsequent charge-downs are taken thereafter in accordance with regulatory guidelines. In 2009, net charge-
offs related to OTC loans were $155.2 million, approximately 19 percent of total net charge-offs.
Asset quality is expected to remain stressed in 2010 due to the expectation that economic conditions will not improve meaningfully. Actual results could differ because of several factors, including those presented in the Forward-Looking Statements section of this MD&A discussion.
46
FIRST HORIZON NATIONAL CORPORATION
Table 19 - Analysis of Allowance for Loan Losses and Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
$ |
|
849,210 |
|
|
|
$ |
|
342,341 |
|
|
|
$ |
|
216,285 |
|
|
|
$ |
|
189,705 |
|
|
|
$ |
|
158,159 |
|
|
|
$ |
|
160,333 |
|
Provision for loan losses |
|
|
|
880,000 |
|
|
|
|
1,080,000 |
|
|
|
|
272,765 |
|
|
|
|
83,129 |
|
|
|
|
67,678 |
|
|
|
|
48,348 |
|
Loans transferred to held for sale |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
2,655 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(8,382 |
) |
|
Acquisitions/(divestitures), net |
|
|
|
- |
|
|
|
|
(370 |
) |
|
|
|
|
(17,598 |
) |
|
|
|
|
(1,470 |
) |
|
|
|
|
1,386 |
|
|
|
|
- |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and industrial |
|
|
|
129,283 |
|
|
|
|
105,626 |
|
|
|
|
42,639 |
|
|
|
|
28,095 |
|
|
|
|
12,789 |
|
|
|
|
11,925 |
|
Real estate commercial |
|
|
|
66,776 |
|
|
|
|
22,518 |
|
|
|
|
2,504 |
|
|
|
|
2,070 |
|
|
|
|
498 |
|
|
|
|
2,690 |
|
Real estate construction |
|
|
|
210,685 |
|
|
|
|
170,995 |
|
|
|
|
26,272 |
|
|
|
|
115 |
|
|
|
|
2,805 |
|
|
|
|
779 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential |
|
|
|
287,857 |
|
|
|
|
131,015 |
|
|
|
|
37,345 |
|
|
|
|
23,405 |
|
|
|
|
18,744 |
|
|
|
|
21,271 |
|
Real estate construction |
|
|
|
161,730 |
|
|
|
|
143,541 |
|
|
|
|
23,806 |
|
|
|
|
1,962 |
|
|
|
|
374 |
|
|
|
|
- |
|
Other retail |
|
|
|
8,605 |
|
|
|
|
8,991 |
|
|
|
|
7,490 |
|
|
|
|
6,753 |
|
|
|
|
6,101 |
|
|
|
|
7,094 |
|
Credit card receivables |
|
|
|
12,025 |
|
|
|
|
9,742 |
|
|
|
|
6,851 |
|
|
|
|
6,226 |
|
|
|
|
10,839 |
|
|
|
|
12,870 |
|
|
Total charge-offs |
|
|
|
876,961 |
|
|
|
|
592,428 |
|
|
|
|
146,907 |
|
|
|
|
68,626 |
|
|
|
|
52,150 |
|
|
|
|
56,629 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and industrial |
|
|
|
7,594 |
|
|
|
|
4,495 |
|
|
|
|
7,169 |
|
|
|
|
4,725 |
|
|
|
|
3,328 |
|
|
|
|
3,473 |
|
Real estate commercial |
|
|
|
2,717 |
|
|
|
|
81 |
|
|
|
|
223 |
|
|
|
|
296 |
|
|
|
|
1,173 |
|
|
|
|
51 |
|
Real estate construction |
|
|
|
8,073 |
|
|
|
|
2,305 |
|
|
|
|
2 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
10 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential |
|
|
|
17,041 |
|
|
|
|
7,815 |
|
|
|
|
4,256 |
|
|
|
|
4,307 |
|
|
|
|
5,300 |
|
|
|
|
4,517 |
|
Real estate construction |
|
|
|
6,529 |
|
|
|
|
2,253 |
|
|
|
|
280 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Other retail |
|
|
|
2,202 |
|
|
|
|
2,309 |
|
|
|
|
2,458 |
|
|
|
|
3,090 |
|
|
|
|
3,697 |
|
|
|
|
4,211 |
|
Credit card receivables |
|
|
|
509 |
|
|
|
|
409 |
|
|
|
|
753 |
|
|
|
|
1,129 |
|
|
|
|
1,134 |
|
|
|
|
2,227 |
|
|
Total recoveries |
|
|
|
44,665 |
|
|
|
|
19,667 |
|
|
|
|
15,141 |
|
|
|
|
13,547 |
|
|
|
|
14,632 |
|
|
|
|
14,489 |
|
|
Net charge-offs |
|
|
|
832,296 |
|
|
|
|
572,761 |
|
|
|
|
131,766 |
|
|
|
|
55,079 |
|
|
|
|
37,518 |
|
|
|
|
42,140 |
|
|
Ending balance |
|
|
$ |
|
896,914 |
|
|
|
$ |
|
849,210 |
|
|
|
$ |
|
342,341 |
|
|
|
$ |
|
216,285 |
|
|
|
$ |
|
189,705 |
|
|
|
$ |
|
158,159 |
|
|
Reserve for off-balance sheet commitments |
|
|
$ |
|
19,685 |
|
|
|
$ |
|
18,752 |
|
|
|
$ |
|
10,726 |
|
|
|
$ |
|
9,378 |
|
|
|
$ |
|
10,650 |
|
|
|
$ |
|
7,904 |
|
Total of allowance for loan losses and reserve for off-balance sheet commitments |
|
|
$ |
|
916,599 |
|
|
|
$ |
|
867,962 |
|
|
|
$ |
|
353,067 |
|
|
|
$ |
|
225,663 |
|
|
|
$ |
|
200,355 |
|
|
|
$ |
|
166,063 |
|
|
Loans and commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
Period end loans, net of unearned |
|
|
$ |
|
18,123,884 |
|
|
|
$ |
|
21,278,190 |
|
|
|
$ |
|
22,103,516 |
|
|
|
$ |
|
22,104,905 |
|
|
|
$ |
|
20,611,998 |
|
|
|
$ |
|
16,441,928 |
|
Insured retail residential and construction loans (a) |
|
|
|
365,602 |
|
|
|
|
591,116 |
|
|
|
|
913,164 |
|
|
|
|
729,842 |
|
|
|
|
826,904 |
|
|
|
|
665,909 |
|
|
Loans excluding insured loans |
|
|
$ |
|
17,758,282 |
|
|
|
$ |
|
20,687,074 |
|
|
|
$ |
|
21,190,352 |
|
|
|
$ |
|
21,375,063 |
|
|
|
$ |
|
19,785,094 |
|
|
|
$ |
|
15,776,019 |
|
|
Off-balance sheet commitments (b) |
|
|
$ |
|
5,452,625 |
|
|
|
$ |
|
6,441,854 |
|
|
|
$ |
|
6,929,299 |
|
|
|
$ |
|
7,587,028 |
|
|
|
$ |
|
9,090,618 |
|
|
|
$ |
|
6,226,245 |
|
|
Average loans, net of unearned |
|
|
$ |
|
19,579,267 |
|
|
|
$ |
|
21,660,704 |
|
|
|
$ |
|
22,106,682 |
|
|
|
$ |
|
21,504,175 |
|
|
|
$ |
|
18,334,684 |
|
|
|
$ |
|
15,440,501 |
|
|
Allowance and net charge off ratios (c): |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to total loans |
|
|
|
4.95 |
% |
|
|
|
|
3.99 |
% |
|
|
|
|
1.55 |
% |
|
|
|
|
.98 |
% |
|
|
|
|
.92 |
% |
|
|
|
|
.96 |
% |
|
Allowance to total loans excluding insured loans |
|
|
|
5.05 |
|
|
|
|
4.11 |
|
|
|
|
1.62 |
|
|
|
|
1.01 |
|
|
|
|
.96 |
|
|
|
|
1.00 |
|
Allowance to net charge-offs |
|
|
|
1.08 |
x |
|
|
|
|
1.48 |
x |
|
|
|
|
2.60 |
x |
|
|
|
|
3.93 |
x |
|
|
|
|
5.06 |
x |
|
|
|
|
3.75 |
x |
|
Total commercial net charge-offs |
|
|
|
3.80 |
% |
|
|
|
|
2.63 |
% |
|
|
|
|
.57 |
% |
|
|
|
|
.24 |
% |
|
|
|
|
.13 |
% |
|
|
|
|
.18 |
% |
|
Retail real estate net charge-offs |
|
|
|
4.71 |
|
|
|
|
2.58 |
|
|
|
|
.54 |
|
|
|
|
.20 |
|
|
|
|
.15 |
|
|
|
|
.20 |
|
Other retail net charge-offs |
|
|
|
4.95 |
|
|
|
|
4.81 |
|
|
|
|
3.37 |
|
|
|
|
2.26 |
|
|
|
|
1.46 |
|
|
|
|
1.55 |
|
Credit card receivables net charge-offs |
|
|
|
6.18 |
|
|
|
|
4.83 |
|
|
|
|
3.11 |
|
|
|
|
2.43 |
|
|
|
|
4.03 |
|
|
|
|
4.25 |
|
Net charge-offs to average loans |
|
|
|
4.25 |
|
|
|
|
2.64 |
|
|
|
|
.60 |
|
|
|
|
.26 |
|
|
|
|
.20 |
|
|
|
|
.27 |
|
|
|
(a) |
|
|
|
Whole-loan insurance is obtained on certain retail residential and construction loans. Insuring these loans absorbs credit risk and results in lower allowance for loan losses. |
|
(b) |
|
|
|
Amount of off-balance sheet commitments for which a reserve has been provided. See Note 25 Derivatives and Off-Balance Sheet Arrangements for further details on off-balance sheet commitments. |
|
(c) |
|
|
|
Loans net of unearned income. Net charge-off ratios are calculated based on average loans. Table 9 provides information on the relative size of each loan portfolio.
|
47
FIRST HORIZON NATIONAL CORPORATION
Nonperforming Assets
Nonperforming loans (NPLs) consist of impaired, other nonaccrual, and restructured loans. These, along with foreclosed real estate (excluding foreclosed real estate from GNMA loans), represent nonperforming assets (NPAs). Impaired loans are those loans for which it is probable that all amounts due, according
to the contractual terms of the loan agreement, will not be collected and for which recognition of interest income has been discontinued. Other nonaccrual loans are residential and other retail loans on which recognition of interest income has been discontinued. Foreclosed assets are recognized at fair value less
estimated costs of disposal at foreclosure.
Nonperforming assets decreased to $1.1 billion on December 31, 2009, from $1.2 billion on December 31, 2008. The nonperforming assets ratio (nonperforming assets to period-end loans and foreclosed real estate) increased to 5.56 percent in 2009 from 5.38 percent in 2008 due to decreased loan balances.
Nonperforming loans in the loan portfolio were $.9 billion on December 31, 2009, compared to $1.0 billion on December 31, 2008. Nonperforming OTC loans decreased $232.2 million to $189.8 million on December 31, 2009, from $422.0 million on December 31, 2008. Nonperforming homebuilder/condominium
construction (Res CRE) loans decreased to $274.7 million on December 31, 2009, from $395.7 million on December 31, 2008. The decline in both portfolios is a result of efforts to reduce overall portfolio size and exposure to these credits.
While NPLs from the construction portfolios declined from 2008, all other portfolios reflected higher nonperforming loans when compared to 2008. Nonperforming loans within the Income CRE portfolio increased $83.7 million to $183.6 million as market conditions have impacted performance. C&I nonperforming
loans increased approximately $55.3 million to $135.5 million in 2009 with a majority of the increase attributable to deterioration of bank-related and trust preferred loans. Nonperforming Permanent Mortgage loans increased 133 percent to $97.9 million. A substantial portion of these loans are mortgages that
converted from OTC construction loans upon completion or jumbo product. Nonperforming home equity loans were $17.9 million and represent a small percentage of all nonperforming loans. The nonperforming held for sale loans, which were $38.3 million on December 31, 2009, are written down to lower of cost
or market.
Despite a decline in nonperforming loans, the ratio of NPLs in the loan portfolio to total loans and also NPAs to total loans and foreclosed real estate increased from 2008. This increase is attributable to the continued wind-down of the national construction portfolios within the National Specialty Lending segment
which resulted in a significant decline in the size of these portfolios from 2008. The ratio of ALLL to NPLs in the loan portfolio increased to 1.00 times in 2009 compared to .81 times in 2008. Although this ratio increased from 2008, this ratio continues to be depressed due to FHNs methodology of charging down
individually impaired collateral dependent loans. The individually impaired loans that do not carry reserves were $402.0 million on December 31, 2009. Charged-down individually impaired loans represent 45 percent of nonperforming loans in the loan portfolio as of December 31, 2009. This compresses the ALLL to
nonperforming loans ratio because individually impaired loans are included in nonperforming loans, but reserves for these loans are not carried in the ALLL as the impairment has been charged off. On December 31, 2009, Residential CRE loans were $235.8 million, or 46 percent, of all individually impaired loans
while the remainder is included in the C&I and Income CRE portfolios. Additionally, charged-down OTC loans are included in nonperforming loans. As of December 31, 2009, OTC loans accounted for 21 percent of nonperforming loans in the loan portfolio. The ALLL related to OTC loans was $61.6 million which
provides a coverage ratio of 27 percent for inherent losses in the remainder of that portfolio. Nonperforming loans in the loan portfolio for which reserves are actually carried were approximately $374.5 million as of December 31, 2009.
While nonperforming asset levels are expected to decrease in 2010, the NPA and NPL ratios could remain elevated throughout the current economic downturn as total loan balances are expected to remain at current levels or slightly decline.
Table 20 gives additional information related to changes in nonperforming assets for 2007 through 2009 and nonperforming assets by segment. Information regarding nonperforming assets and past-due loans is presented in Table 21.
48
FIRST HORIZON NATIONAL CORPORATION
Table 20 - Nonperforming Assets
|
|
|
|
|
|
|
Change in Nonperforming Assets |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Beginning balance |
|
|
$ |
|
1,157,957 |
|
|
|
$ |
|
392,427 |
|
|
|
$ |
|
139,028 |
|
Additional nonperforming assets |
|
|
|
1,191,269 |
|
|
|
|
1,677,830 |
|
|
|
|
442,524 |
|
Payments, sales, and other dispositions |
|
|
|
(687,617 |
) |
|
|
|
|
(524,684 |
) |
|
|
|
|
(95,864 |
) |
|
Charge-offs |
|
|
|
(610,216 |
) |
|
|
|
|
(387,616 |
) |
|
|
|
|
(93,261 |
) |
|
|
Ending balance |
|
|
$ |
|
1,051,393 |
|
|
|
$ |
|
1,157,957 |
|
|
|
$ |
|
392,427 |
|
|
Nonperforming Assets by Segment |
|
|
|
|
|
|
|
Regional Banking: |
|
|
|
|
|
|
Nonperforming loans |
|
|
$ |
|
220,305 |
|
|
|
$ |
|
163,933 |
|
|
|
$ |
|
30,608 |
|
Foreclosed real estate |
|
|
|
25,239 |
|
|
|
|
31,665 |
|
|
|
|
35,026 |
|
|
Total Regional Banking |
|
|
|
245,544 |
|
|
|
|
195,598 |
|
|
|
|
65,634 |
|
|
Capital Markets: |
|
|
|
|
|
|
Nonperforming loans |
|
|
|
88,627 |
|
|
|
|
27,339 |
|
|
|
|
8,970 |
|
Foreclosed real estate |
|
|
|
5,231 |
|
|
|
|
600 |
|
|
|
|
810 |
|
|
Total Capital Markets |
|
|
|
93,858 |
|
|
|
|
27,939 |
|
|
|
|
9,780 |
|
|
National Specialty Lending: |
|
|
|
|
|
|
Nonperforming loans |
|
|
|
513,302 |
|
|
|
|
834,042 |
|
|
|
|
243,711 |
|
Foreclosed real estate |
|
|
|
67,934 |
|
|
|
|
52,725 |
|
|
|
|
34,120 |
|
|
Total National Specialty Lending |
|
|
|
581,236 |
|
|
|
|
886,767 |
|
|
|
|
277,831 |
|
|
Mortgage Banking: |
|
|
|
|
|
|
Nonperforming loans including held for sale (a) |
|
|
|
115,450 |
|
|
|
|
28,335 |
|
|
|
|
23,797 |
|
Foreclosed real estate |
|
|
|
15,305 |
|
|
|
|
19,318 |
|
|
|
|
15,385 |
|
|
Total Mortgage Banking |
|
|
|
130,755 |
|
|
|
|
47,653 |
|
|
|
|
39,182 |
|
|
Total nonperforming loans |
|
|
$ |
|
937,684 |
|
|
|
|
1,053,649 |
|
|
|
|
307,086 |
|
|
Total foreclosed real estate & other assets |
|
|
|
113,709 |
|
|
|
|
104,308 |
|
|
|
|
85,341 |
|
|
Total nonperforming assets (b) |
|
|
$ |
|
1,051,393 |
|
|
|
$ |
|
1,157,957 |
|
|
|
$ |
|
392,427 |
|
|
|
(a) |
|
|
|
Includes $77.2 million of loans held to maturity as of December 31, 2009. |
|
(b) |
|
|
|
Total individually impaired loans included in nonperforming loans were $509.1 million, $474.1 million, and $126.6 million for the years 2009, 2008, and 2007, respectively.
|
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due 90 days or more as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans in the portfolio 90 days or more past due increased to $137.8 million on December 31, 2009, compared to $85.3 million on December 31, 2008, with
a ratio of past due loans in the loan portfolio to total loans of .76 percent on December 31, 2009, compared to .40 percent on December 31, 2008. This increase is primarily due to the severe housing market and declining general economic conditions and its impact on both commercial and retail real estate
portfolios. Loans 30 to 89 days past due decreased $69.7 million to $291.0 million while the ratio of portfolio loans 30 to 89 days past due to total loans decreased to 1.61 percent on December 31, 2009, compared to 1.70 percent on December 31, 2008. Additional historical past due loan information can be
found in Table 22.
Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrowers ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established
by the Office of the Comptroller of the Currency for loans classified substandard. Potential problem assets in the loan portfolio, which includes loans past due 90 days or more but excludes nonperforming assets, increased to $1.4 billion, or 8 percent of total loans, on December 31, 2009, from $1.2 billion, or 6
percent of total loans, on December 31, 2008. The current expectation of losses from potential problem assets has been included in managements analysis for assessing the adequacy of the allowance for loan losses.
On December 31, 2009 and 2008, FHN had $72.8 million and $23.8 million, respectively, of loans that have been restructured in accordance with regulatory guidelines. A majority of these modified loans are within the consumer portfolio.
49
FIRST HORIZON NATIONAL CORPORATION
Table 21 - Nonperforming Assets and Delinquencies on December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Total nonperforming loans (a) |
|
|
$ |
|
937,684 |
|
|
|
$ |
|
1,053,649 |
|
|
|
$ |
|
307,086 |
|
|
|
$ |
|
93,631 |
|
|
|
$ |
|
52,259 |
|
|
|
$ |
|
49,560 |
|
|
Total foreclosed real estate & other assets (b) |
|
|
|
113,709 |
|
|
|
|
104,308 |
|
|
|
|
85,341 |
|
|
|
|
45,397 |
|
|
|
|
27,410 |
|
|
|
|
27,778 |
|
|
Total nonperforming assets |
|
|
$ |
|
1,051,393 |
|
|
|
$ |
|
1,157,957 |
|
|
|
$ |
|
392,427 |
|
|
|
$ |
|
139,028 |
|
|
|
$ |
|
79,669 |
|
|
|
$ |
|
77,338 |
|
|
Total loans, net of unearned income |
|
|
$ |
|
18,123,884 |
|
|
|
$ |
|
21,278,190 |
|
|
|
$ |
|
22,103,516 |
|
|
|
$ |
|
22,104,905 |
|
|
|
$ |
|
20,611,998 |
|
|
|
$ |
|
16,441,928 |
|
Insured loans |
|
|
|
365,602 |
|
|
|
|
591,116 |
|
|
|
|
913,164 |
|
|
|
|
729,842 |
|
|
|
|
826,904 |
|
|
|
|
665,909 |
|
|
Loans excluding insured loans |
|
|
$ |
|
17,758,282 |
|
|
|
$ |
|
20,687,074 |
|
|
|
$ |
|
21,190,352 |
|
|
|
$ |
|
21,375,063 |
|
|
|
$ |
|
19,785,094 |
|
|
|
$ |
|
15,776,019 |
|
|
Foreclosed real estate from GNMA loans (c) |
|
|
$ |
|
11,481 |
|
|
|
$ |
|
21,230 |
|
|
|
$ |
|
18,642 |
|
|
|
$ |
|
18,121 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
Potential problem assets (d) |
|
|
|
1,382,698 |
|
|
|
|
1,180,942 |
|
|
|
|
222,471 |
|
|
|
|
161,727 |
|
|
|
|
187,208 |
|
|
|
|
98,926 |
|
Loans 30 to 89 days past due |
|
|
|
291,022 |
|
|
|
|
360,735 |
|
|
|
|
287,949 |
|
|
|
|
131,211 |
|
|
|
|
97,980 |
|
|
|
|
69,593 |
|
Loans 30 to 89 days past due guaranteed portion (e) |
|
|
|
76 |
|
|
|
|
94 |
|
|
|
|
92 |
|
|
|
|
161 |
|
|
|
|
1,021 |
|
|
|
|
873 |
|
Loans 90 days past due |
|
|
|
137,823 |
|
|
|
|
85,364 |
|
|
|
|
56,755 |
|
|
|
|
35,248 |
|
|
|
|
37,067 |
|
|
|
|
33,343 |
|
Loans 90 days past due guaranteed portion (e) |
|
|
|
239 |
|
|
|
|
228 |
|
|
|
|
178 |
|
|
|
|
242 |
|
|
|
|
5,348 |
|
|
|
|
5,561 |
|
Loans held for sale 30 to 89 days past due |
|
|
|
35,047 |
|
|
|
|
45,307 |
|
|
|
|
57,317 |
|
|
|
|
31,264 |
|
|
|
|
45,788 |
|
|
|
|
56,379 |
|
Loans held for sale 30 to 89 days past due guaranteed portion (e) |
|
|
|
35,047 |
|
|
|
|
45,296 |
|
|
|
|
57,317 |
|
|
|
|
24,586 |
|
|
|
|
30,868 |
|
|
|
|
43,542 |
|
Loans held for sale 90 days past due |
|
|
|
44,520 |
|
|
|
|
47,704 |
|
|
|
|
194,754 |
|
|
|
|
131,944 |
|
|
|
|
176,591 |
|
|
|
|
180,617 |
|
Loans held for sale 90 days past due guaranteed portion (e) |
|
|
|
40,013 |
|
|
|
|
42,250 |
|
|
|
|
190,721 |
|
|
|
|
128,627 |
|
|
|
|
173,357 |
|
|
|
|
179,792 |
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to nonperforming loans in the loan portfolio |
|
|
|
1.00 |
x |
|
|
|
|
0.81 |
x |
|
|
|
|
1.21 |
x |
|
|
|
|
2.61 |
x |
|
|
|
|
4.65 |
x |
|
|
|
|
3.85 |
x |
|
NPL % (f) |
|
|
|
4.96 |
% |
|
|
|
|
4.91 |
% |
|
|
|
|
1.28 |
% |
|
|
|
|
0.37 |
% |
|
|
|
|
0.25 |
% |
|
|
|
|
0.30 |
% |
|
NPA % (g) |
|
|
|
5.56 |
% |
|
|
|
|
5.38 |
% |
|
|
|
|
1.59 |
% |
|
|
|
|
0.54 |
% |
|
|
|
|
0.29 |
% |
|
|
|
|
0.37 |
% |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
2009 includes $38.3 million of loans held for sale. |
|
(b) |
|
|
|
Excludes foreclosed assets acquired through GNMAs repurchase program. |
|
(c) |
|
|
|
Prior to 2006, properties acquired by foreclosure through GNMAs repurchase program were classified as receivables in Other Assets on the Consolidated Statements of Condition. |
|
(d) |
|
|
|
Includes past due loans. |
|
(e) |
|
|
|
Guaranteed loans include FHA, VA, student, and GNMA loans repurchased through the GNMA repurchase program. |
|
(f) |
|
|
|
Nonperforming loans in the loan portfolio to total period end loans. |
|
(g) |
|
|
|
Nonperforming assets related to the loan portfolio to total loans plus foreclosed real estate and other assets.
|
50
FIRST HORIZON NATIONAL CORPORATION
The following table provides additional asset quality data by loan portfolio:
Table 22 - Asset Quality by Portfolio
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Commercial (C&I & Other) |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
7,150 |
|
|
|
$ |
|
7,820 |
|
|
30+ Delinq. % (a) |
|
|
|
.96 |
% |
|
|
|
|
.52 |
% |
|
NPL % |
|
|
|
1.89 |
|
|
|
|
1.03 |
|
Charge-offs % |
|
|
|
1.72 |
|
|
|
|
1.36 |
|
|
Allowance / Loans % |
|
|
|
3.87 |
% |
|
|
|
|
2.45 |
% |
|
Allowance / Charge-offs |
|
|
|
2.27 |
x |
|
|
|
|
1.92 |
x |
|
|
Income CRE (Income-producing Commercial Real Estate) |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
1,774 |
|
|
|
$ |
|
1,988 |
|
|
30+ Delinq. % (a) |
|
|
|
3.13 |
% |
|
|
|
|
2.42 |
% |
|
NPL % |
|
|
|
10.35 |
|
|
|
|
5.02 |
|
Charge-offs % |
|
|
|
4.88 |
|
|
|
|
1.43 |
|
|
Allowance / Loans % |
|
|
|
8.67 |
% |
|
|
|
|
4.71 |
% |
|
Allowance / Charge-offs |
|
|
|
1.68 |
x |
|
|
|
|
3.26 |
x |
|
|
Residential CRE (Homebuilder and Condominium Construction) |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
640 |
|
|
|
$ |
|
1,288 |
|
|
30+ Delinq. % (a) |
|
|
|
3.71 |
% |
|
|
|
|
3.74 |
% |
|
NPL % |
|
|
|
42.94 |
|
|
|
|
30.71 |
|
Charge-offs % |
|
|
|
18.02 |
|
|
|
|
9.57 |
|
|
Allowance / Loans % |
|
|
|
8.12 |
% |
|
|
|
|
8.25 |
% |
|
Allowance / Charge-offs |
|
|
|
.30 |
x |
|
|
|
|
.65 |
x |
|
|
Consumer Real Estate (Home Equity Installment and HELOC) |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
6,931 |
|
|
|
$ |
|
7,749 |
|
|
30+ Delinq. % (a) |
|
|
|
2.31 |
% |
|
|
|
|
1.97 |
% |
|
NPL % |
|
|
|
.26 |
|
|
|
|
.07 |
|
Charge-offs % |
|
|
|
2.82 |
|
|
|
|
1.48 |
|
|
Allowance / Loans % |
|
|
|
3.10 |
% |
|
|
|
|
2.35 |
% |
|
Allowance / Charge-offs |
|
|
|
1.03 |
x |
|
|
|
|
1.55 |
x |
|
|
Permanent Mortgage |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
1,086 |
|
|
|
$ |
|
1,127 |
|
|
30+ Delinq. % (a) |
|
|
|
8.49 |
% |
|
|
|
|
6.94 |
% |
|
NPL % |
|
|
|
9.02 |
|
|
|
|
3.73 |
|
Charge-offs % |
|
|
|
5.80 |
|
|
|
|
.74 |
|
|
Allowance / Loans % |
|
|
|
11.41 |
% |
|
|
|
|
4.76 |
% |
|
Allowance / Charge-offs |
|
|
|
1.99 |
x |
|
|
|
|
8.60 |
x |
|
|
OTC (Consumer Residential Construction Loans) |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
229 |
|
|
|
$ |
|
981 |
|
|
30+ Delinq. % (a) |
|
|
|
9.87 |
% |
|
|
|
|
4.43 |
% |
|
NPL % |
|
|
|
82.73 |
|
|
|
|
43.03 |
|
Charge-offs % |
|
|
|
27.07 |
|
|
|
|
9.41 |
|
|
Allowance / Loans % |
|
|
|
26.85 |
% |
|
|
|
|
20.44 |
% |
|
Allowance / Charge-offs |
|
|
|
.40 |
x |
|
|
|
|
1.42 |
x |
|
|
Credit Card and Other |
|
|
|
|
Period-end loans ($ millions) |
|
|
$ |
|
314 |
|
|
|
$ |
|
325 |
|
|
30+ Delinq. % (a) |
|
|
|
2.06 |
% |
|
|
|
|
2.57 |
% |
|
Charge-offs % |
|
|
|
5.68 |
|
|
|
|
4.82 |
|
|
Allowance / Loans % |
|
|
|
4.45 |
% |
|
|
|
|
6.60 |
% |
|
Allowance / Charge-offs |
|
|
|
.78 |
x |
|
|
|
|
1.34 |
x |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
Loans are expressed net of unearned income. All data is based on internal loan classification.
|
(a) |
|
|
|
30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.
|
51
FIRST HORIZON NATIONAL CORPORATION
CRITICAL ACCOUNTING POLICIES
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
FHNs accounting policies are fundamental to understanding managements discussion and analysis of results of operations and financial condition. The Consolidated Financial Statements of FHN are prepared in conformity with accounting principles generally accepted in the United States of America and follow
general practices within the industries in which it operates. The preparation of the financial statements requires management to make certain judgments and assumptions in determining accounting estimates. Accounting estimates are considered critical if (a) the estimate requires management to make assumptions
about matters that were highly uncertain at the time the accounting estimate was made and (b) different estimates reasonably could have been used in the current period, or changes in the accounting estimate are reasonably likely to occur from period to period, that would have a material impact on the
presentation of FHNs financial condition, changes in financial condition or results of operations.
It is managements practice to discuss critical accounting policies with the Board of Directors Audit Committee including the development, selection, and disclosure of the critical accounting estimates. Management believes the following critical accounting policies are both important to the portrayal of the companys
financial condition and results of operations and require subjective or complex judgments. These judgments about critical accounting estimates are based on information available as of the date of the financial statements.
Due to the sale of certain mortgage banking operations in 2008 and FHNs strategic decision to focus on the Regional Bank and Capital Markets, certain related mortgage banking activities and associated balances have significantly declined. As a result, FHN no longer views estimates used to determine the fair
value of the mortgage pipeline, interest rate lock commitments, and certain retained interests (reported in trading securities) from securitizations as a critical accounting estimate.
ALLOWANCE FOR LOAN LOSSES
Managements policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. Management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectibility of the loan portfolio. Accounting standards
require that loan losses be recorded when management determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Management believes the accounting estimate related to the ALLL is a critical accounting estimate because: changes in it can materially affect
the provision for loan losses and net income, it requires management to predict borrowers likelihood or capacity to repay, and it requires management to distinguish between losses incurred as of a balance sheet date and losses expected to be incurred in the future. Accordingly, this is a highly subjective process
and requires significant judgment since it is often difficult to determine when specific loss events may actually occur. The ALLL is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. Principal loan amounts are charged off against the ALLL in the period in which the loan
or any portion of the loan is deemed to be uncollectible. This critical accounting estimate applies to all of FHNs business line segments. A management committee comprised of representatives from Risk Management, Accounting, and Credit performs a quarterly review of the assumptions used and FHNs ALLL
analytical models, qualitative assessments of the loan portfolio, and determines if qualitative adjustments should be recommended to the modeled results. On a quarterly basis, management reviews the level of the ALLL with the Credit Policy and Executive Committee of FHNs board of directors.
FHNs methodology for estimating the ALLL is not only critical to the accounting estimate, but to the credit risk management function as well. Key components of the estimation process are as follows: (1) commercial loans determined by management to be individually impaired loans are evaluated individually and
specific reserves are determined based on the difference between the outstanding loan amount and the estimated net realizable value of the collateral (if collateral dependent) or the present value of expected future cash flows; (2) individual commercial loans not considered to be individually impaired are segmented
based on similar credit risk characteristics and evaluated on a pool basis; (3) reserve rates for the commercial segment are calculated based on historical net charge-offs and are subject to adjustment by management to reflect current events, trends, and conditions (including economic considerations and trends);
(4) managements estimate of probable incurred losses reflects the reserve rate applied against the balance of loans in the commercial segment of the loan portfolio; (5) retail loans
52
FIRST HORIZON NATIONAL CORPORATION
are segmented based on loan type; (6) reserve amounts for each retail portfolio segment are calculated using analytical models based on net loss experience and are subject to adjustment by management to reflect current events, trends, and conditions (including economic considerations and trends); and (7) the
reserve amount for each retail portfolio segment reflects managements estimate of probable incurred losses in the retail segment of the loan portfolio.
During 2009, management developed and utilized an Average Loss Rate Model (ALR) for establishment of commercial portfolio reserve rates. ALR is a grade migration based approach that allows for robust segmentation and dynamic time period consideration. In comparison with the prior commercial reserve rate
establishment, ALR is more sensitive to current portfolio conditions and provides management with additional detailed analysis into historical portfolio net loss experience. Consistent with the preceding approach, these reserve rates are then subject to management adjustment to reflect current events, trends and
conditions (including economic considerations and trends) that affect the asset quality of the commercial loan portfolio.
For commercial loans, reserves are established using historical net loss factors by grade level, loan product, and business segment. Relationship managers risk rate each loan using grades that reflect both the probability of default and estimated loss severity in the event of default. Portfolio reviews are conducted to
provide independent oversight of risk grading decisions for larger credits. Loans with emerging weaknesses receive increased oversight through our Watch List process. For new Watch List loans, senior credit management reviews risk grade appropriateness and action plans. After initial identification, relationship
managers prepare regular updates for review and discussion by more senior business line and credit officers. This oversight is intended to bring consistent grading and allow timely identification of loans that need to be further downgraded or placed on nonaccrual status. When a loan becomes classified, the asset
generally transfers to the specialists in our Loan Rehab and Recovery group where the accounts receive more detailed monitoring; at this time, new appraisals are typically ordered for real estate collateral dependent credits. Typically, loans are placed on nonaccrual if it becomes evident that full collection of
principal and interest is at risk or if the loans become 90 days or more past due.
Generally, classified commercial nonaccrual loans over $1 million are deemed to be individually impaired and are assessed for impairment measurement. For impaired assets viewed as collateral dependent, fair value estimates are obtained from a recently received and reviewed appraisal. Appraised values are
adjusted down for costs associated with asset disposal and for the estimates of any further deterioration in values since the most recent appraisal. Upon the determination of impairment, FHN charges off the full difference between book value and our best estimate of the assets net realizable value. As of December
31, 2009, the total amount of individually impaired commercial loans is $509.1 million; $402.0 million of these loans are carried at the fair value of collateral less estimated costs to sale and do not carry reserves.
For OTC real estate construction loans, reserve levels are established based on portfolio modeling and regular portfolio reviews. OTC loans that reach 90 days past due are placed on nonaccrual. A new appraisal is ordered for loans that reach 90 days past due or are classified as substandard during the regular
portfolio review. Loans are initially written down to current appraised value. Periodically, loans are assessed for further charge down.
For home equity loans and lines, reserve levels are established through the use of segmented roll-rate models. Loans are classified as substandard at 90 days delinquent. Our collateral position is assessed prior to the asset becoming 180 days delinquent. If the value does not support foreclosure, balances are
charged-off and other avenues of recovery are pursued. If the value supports foreclosure, the loan is charged-down to net realizable value and is placed on nonaccrual status. When collateral is taken to OREO, the asset is assessed for further write-down relative to appraised value.
FHN believes that the critical assumptions underlying the accounting estimate made by management include: (1) the commercial loan portfolio has been properly risk graded based on information about borrowers in specific industries and specific issues with respect to single borrowers; (2) borrower specific
information made available to FHN is current and accurate; (3) the loan portfolio has been segmented properly and individual loans have similar credit risk characteristics and will behave similarly; (4) known significant loss events that have occurred were considered by management at the time of assessing the
adequacy of the ALLL; (5) the adjustments for economic conditions utilized in the allowance for loan losses estimate are used as a measure of actual incurred losses; (6) the period of history used for historical loss factors is indicative of the current environment; and (7) the reserve
53
FIRST HORIZON NATIONAL CORPORATION
rates, as well as other adjustments estimated by management for current events, trends, and conditions, utilized in the process reflect an estimate of losses that have been incurred as of the date of the financial statements.
While management uses the best information available to establish the ALLL, future adjustments to the ALLL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates or, if required by regulators, based upon information at the time of
their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.
MORTGAGE SERVICING RIGHTS AND OTHER RELATED RETAINED INTERESTS
When FHN sold mortgage loans in the secondary market to investors, it generally retained the right to service the loans sold in exchange for a servicing fee that is collected over the life of the loan as the payments are received from the borrower. An amount was capitalized as MSR on the Consolidated Statements
of Condition at current fair value. The changes in fair value of MSR are included as a component of Mortgage BankingNoninterest Income on the Consolidated Statements of Income.
MSR Estimated Fair Value
FHN has elected fair value accounting for all classes of mortgage servicing rights. The fair value of MSR typically rises as market interest rates increase and declines as market interest rates decrease; however, the extent to which this occurs depends in part on (1) the magnitude of changes in market interest rates
and (2) the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage-servicing portfolio.
Since sales of MSR tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSR. As such, FHN relies primarily on a discounted cash flow model to estimate the fair value of its MSR.
This model calculates estimated fair value of the MSR using predominant risk characteristics of MSR, such as interest rates, type of product (fixed vs. variable), age (new, seasoned, or moderate), agency type, and other factors. FHN uses assumptions in the model that it believes are comparable to those used by
other participants in the mortgage banking business and reviews estimated fair values and assumptions with third-party brokers and other service providers on a quarterly basis. FHN also compares its estimates of fair value and assumptions to recent market activity and against its own experience.
Estimating the cash flow components of net servicing income from the loan and the resultant fair value of the MSR requires FHN to make several critical assumptions based upon current market and loan production data.
Prepayment Speeds: Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid the anticipated cash flows
associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized MSR. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is
possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, FHN utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving
historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates, and other factors. For purposes of model valuation, estimates are made for each product type within the MSR portfolio on a monthly basis.
Table 23 - Mortgage Banking Prepayment Assumptions
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
Prepayment speeds |
|
|
|
|
|
|
Actual |
|
|
|
21.1 |
% |
|
|
|
|
13.1 |
% |
|
|
|
|
15.4 |
% |
|
Estimated* |
|
|
|
33.2 |
|
|
|
|
25.3 |
|
|
|
|
15.2 |
|
|
54
FIRST HORIZON NATIONAL CORPORATION
|
* |
|
|
|
Estimated prepayment speeds represent monthly average prepayment speed estimates for each of the years presented.
|
Discount Rate: Represents the rate at which expected cash flows are discounted to arrive at the net present value of servicing income. Discount rates will change with market conditions (i.e., supply vs. demand) and be reflective of the yields expected to be earned by market participants investing in MSR.
Cost to Service: Expected costs to service are estimated based upon the incremental costs that a market participant would use in evaluating the potential acquisition of MSR.
Float Income: Estimated float income is driven by expected float balances (principal, interest and escrow payments that are held pending remittance to the investor or other third party) and current market interest rates, including the thirty-day London Inter-Bank Offered Rate (LIBOR) and five-year swap interest
rates, which are updated on a monthly basis for purposes of estimating the fair value of MSR.
FHN engages in a process referred to as price discovery on a quarterly basis to assess the reasonableness of the estimated fair value of MSR. Price discovery is conducted through a process of obtaining the following information: (a) quarterly informal (and an annual formal) valuation of the servicing portfolio by
prominent independent mortgage-servicing brokers and (b) a collection of surveys and benchmarking data made available by independent third parties that include peer participants in the mortgage banking business. Although there is no single source of market information that can be relied upon to assess the fair
value of MSR, FHN reviews all information obtained during price discovery to determine whether the estimated fair value of MSR is reasonable when compared to market information. On December 31, 2009 and 2008, FHN determined that its MSR valuations and assumptions were reasonable based on the price
discovery process.
The MSR Hedging Committee reviews the overall assessment of the estimated fair value of MSR monthly and is responsible for approving the critical assumptions used by management to determine the estimated fair value of FHNs MSR. In addition, this committee reviews the source of significant changes to the
MSR carrying value each quarter and is responsible for current hedges and approving hedging strategies.
Hedging the Fair Value of MSR
FHN enters into financial agreements to hedge MSR in order to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge
instruments will decline. Specifically, FHN enters into interest rate contracts (including swaps, swaptions, and mortgage forward purchase contracts) to hedge against the effects of changes in fair value of its MSR. Substantially all capitalized MSR are hedged. The hedges are economic hedges only, and are
terminated and reestablished as needed to respond to changes in market conditions. Changes in the value of the hedges are recognized as a component of net servicing income in mortgage banking noninterest income. Successful economic hedging will help minimize earnings volatility that may result from carrying
MSR at fair value. Subsequent to the sale of certain mortgage banking operations in 2008, FHN determines the fair value of the derivatives used to hedge MSR (and excess interests as discussed below) using quoted prices for identical instruments in valuing forwards and using inputs observed in active markets for
similar instruments with typical inputs including the LIBOR curve, option volatility and option skew in valuing swaps and swaptions. Prior to the sale, fair values of these derivatives were obtained through proprietary pricing models which were compared to market value quotes received from third party broker-dealers
in the derivative markets.
In conjunction with the repositioning of its mortgage banking operations, FHN no longer retains servicing on the loans it sells. In prior periods, FHN generally experienced increased loan origination and production in periods of low interest rates which resulted in the capitalization of new MSR associated with new
production. This provided for a natural hedge in the mortgage banking business cycle. New production and origination did not prevent FHN from recognizing losses due to reduction in carrying value of existing servicing rights as a result of prepayments; rather, the new production volume resulted in loan
origination fees and the capitalization of MSR as a component of realized gains related to the sale of such loans in the secondary market, thus the natural hedge, which tended to offset a portion of the reduction in MSR carrying value during a period of low interest rates. In a period of increased borrower
prepayments, these losses could have been significantly offset by a strong replenishment rate and strong net margins on new loan originations. To the extent that First Horizon Home Loans
55
FIRST HORIZON NATIONAL CORPORATION
was unable to maintain a strong replenishment rate, or in the event that the net margin on new loan originations declined from historical experience, the value of the natural hedge might have diminished, thereby significantly impacting the results of operations in a period of increased borrower prepayments.
FHN does not specifically hedge the change in fair value of MSR attributed to other risks, including unanticipated prepayments (representing the difference between actual prepayment experience and estimated prepayments derived from the model, as described above), discount rates, cost to service, and other
factors. To the extent that these other factors result in changes to the fair value of MSR, FHN experiences volatility in current earnings due to the fact that these risks are not currently hedged.
Excess Interest (Interest-Only Strips) Fair Value Residential Mortgage Loans
In certain cases, when FHN sold mortgage loans in the secondary market, it retained an interest in the mortgage loans sold primarily through excess interest. These financial assets represent rights to receive earnings from serviced assets that exceed contractually specified servicing fees and are legally separable
from the base servicing rights. Consistent with MSR, the fair value of excess interest typically rises as market interest rates increase and declines as market interest rates decrease. Additionally, similar to MSR, the market for excess interest is limited, and the precise terms of transactions involving excess interest are
typically not readily available. Accordingly, FHN relies primarily on a discounted cash flow model to estimate the fair value of its excess interest.
Estimating the cash flow components and the resultant fair value of the excess interest requires FHN to make certain critical assumptions based upon current market and loan production data. The primary critical assumptions used by FHN to estimate the fair value of excess interest include prepayment speeds and
discount rates, as discussed above. FHNs excess interest is included as a component of trading securities on the Consolidated Statements of Condition, with realized and unrealized gains and losses included in current earnings as a component of mortgage banking income on the Consolidated Statements of
Income.
Hedging the Fair Value of Excess Interest
FHN utilizes derivatives (including swaps, swaptions, and mortgage forward sales contracts) that change in value inversely to the movement of interest rates to protect the value of its excess interest as an economic hedge. Realized and unrealized gains and losses associated with the change in fair value of
derivatives used in the economic hedge of excess interest are included in current earnings in mortgage banking noninterest income as a component of servicing income. Excess interest is included in trading securities with changes in fair value recognized currently in earnings in mortgage banking noninterest
income as a component of servicing income.
The extent to which the change in fair value of excess interest is offset by the change in fair value of the derivatives used to hedge this asset depends primarily on the hedge coverage ratio maintained by FHN. Also, as noted above, to the extent that actual borrower prepayments do not react as anticipated by the
prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments, which could significantly impact FHNs ability to effectively hedge certain components of the change in fair
value of excess interest and could result in significant earnings volatility.
MORTGAGE WAREHOUSE
FHN retained the mortgage warehouse subsequent to the 2008 sale of certain mortgage banking operations. While the mortgage warehouse has significantly declined since the sale when compared with prior periods, it was $332.0 million on December 31, 2009. The fair value of the remaining mortgage warehouse
is considered a critical accounting estimate as the fair value is affected by changes in interest rates, but also by changes in borrowers credit, and changes in profit margins required by investors for perceived risks (i.e., liquidity). FHN does not hedge against credit and liquidity risk in the warehouse.
On January 1, 2008, FHN adopted FASB Accounting Standards Codification for Financial Instruments (ASC 825-10) regarding the fair value election for financial instruments. Prior to adoption of ASC 825-10, all warehouse loans were carried at the lower of cost or market, where carrying value was adjusted for
successful hedging under
56
FIRST HORIZON NATIONAL CORPORATION
applicable accounting requirements (ASC 815-10) and the comparison of carrying value to market was performed for aggregate loan pools. Upon adoption of ASC 825-10, FHN elected to prospectively account for substantially all of its mortgage loan warehouse products at fair value upon origination and
correspondingly discontinued the application of ASC 815-10 hedging relationships for these new originations.
In conjunction with the adoption of a revision to ASC 820-10, in first quarter 2009 FHN revised its methodology for determining the fair value of certain loans within its mortgage warehouse. FHN now determines the fair value of the applicable loans using a discounted cash flow model using observable inputs,
including current mortgage rates for similar products, with adjustments for differences in loan characteristics reflected in the models discount rates. Upon implementation, this change in methodology had a minimal effect on the valuation of the applicable loans. For all other loans held in the warehouse (and in prior
periods for the loans converted to the discounted cash flow methodology), the fair value of loans whose principal market is the securitization market is based on recent security trade prices for similar product with a similar delivery date, with necessary pricing adjustments to convert the security price to a loan price.
Loans whose principal market is the whole loan market are priced based on recent observable whole loan trade prices or published third party bid prices for similar product, with necessary pricing adjustments to reflect differences in loan characteristics. Typical adjustments to security prices for whole loan prices
include adding the value of MSR to the security price or to the whole loan price if the price is servicing retained, adjusting for interest in excess of (or less than) the required coupon or note rate, adjustments to reflect differences in the characteristics of the loans being valued as compared to the collateral of the
security or the loan characteristics in the benchmark whole loan trade, adding interest carry, reflecting the recourse obligation that will remain after sale, and adjusting for changes in market liquidity or interest rates if the benchmark security or loan price is not current. Additionally, loans that are delinquent or
otherwise significantly aged are discounted to reflect the less marketable nature of these loans.
FORECLOSURE AND REPURCHASE RESERVES
Prior to 2009, FHN originated loans through its legacy mortgage business, primarily first lien home loans, with the intention of selling them. Sometimes the loans were sold with full or limited recourse, but much more often the loans were sold without recourse. For loans sold with recourse, FHN has indemnity and
repurchase exposure if the loans default. For loans sold without recourse, FHN has repurchase exposure primarily for claims that FHN breached its representations and warranties made to the purchasers at the time of sale. From 2005 through 2008, FHN sold approximately $114 billion of such loans.
For loans sold without recourse, FHN has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations or warranties made by FHN at the time of sale. Such
representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and loans obtained through fraud by borrowers or other third parties such as appraisers. A majority of these loans were sold to government-sponsored agencies, primarily the Federal
National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). While loan delinquency or foreclosure is not the basis for FHNs obligations for breach of contract, delinquency or foreclosure increases the probability of agency/private purchaser review of the loans sold.
Repurchased loans are recognized at fair value at the time of repurchase, which includes consideration of the credit status of the loans.
FHN has sold certain agency mortgage loans with full recourse under agreements to repurchase the loans upon default. Loans sold with full recourse generally include mortgage loans sold to investors in the secondary market which are uninsurable under government guaranteed mortgage loan programs due to
issues associated with underwriting activities, documentation, or other concerns. For mortgage insured single-family residential loans, in the event of borrower nonperformance, FHN would assume losses to the extent they exceed the value of the collateral and private mortgage insurance, FHA insurance, or VA
guaranty. On December 31, 2009 and 2008, FHN had single-family residential loans with outstanding balances of $71.9 million and $80.9 million, respectively, that were sold, servicing retained, on a full recourse basis.
Loans sold with limited recourse include loans sold under government guaranteed mortgage loan programs including the Federal Housing Administration (FHA) and Veterans Administration (VA). FHN continues to absorb losses due to uncollected interest and foreclosure costs and/or limited risk of credit losses in the
event of
57
FIRST HORIZON NATIONAL CORPORATION
foreclosure of the mortgage loan sold. Generally, the amount of recourse liability in the event of foreclosure is determined based upon the respective government program and/or the sale or disposal of the foreclosed property collateralizing the mortgage loan. Another instance of limited recourse is the VA/No bid. In
this case, the VA guarantee is limited and FHN may be required to fund any deficiency in excess of the VA guarantee if the loan goes to foreclosure. On December 31, 2009 and 2008, the outstanding principal balance of loans sold with limited recourse arrangements where some portion of the principal is at
risk and serviced by FHN was $3.3 billion and $3.5 billion, respectively. Additionally, on December 31, 2009 and 2008, $1.0 billion and $1.7 billion, respectively, of mortgage loans were outstanding which were sold under limited recourse arrangements where the risk is limited to interest and servicing
advances.
FHN has evaluated its exposure under all of these obligations and accordingly, has reserved for losses of $105.7 million, $37.0 million, and $16.2 million as of December 31, 2009, 2008, and 2007, respectively. Reserves for FHNs estimate of these obligations are reflected in Other liabilities on the
Consolidated Statements of Condition while expense related to this reserve is included within mortgage banking foreclosure and repurchase provision on the Consolidated Statements of Income. Table 24 provides a summary of reserves for foreclosure and repurchase losses for the periods ended December
31, 2009, 2008, and 2007. See Note 18 Restrictions, Contingencies, and Other Disclosure and the Off-balance sheet arrangements and other contractual obligations section in this MD&A for additional information regarding FHNs repurchase and make-whole obligations.
Table 24 - Reserves for Foreclosure and Repurchase Losses
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Beginning balance |
|
|
$ |
|
36,956 |
|
|
|
$ |
|
16,160 |
|
|
|
$ |
|
14,036 |
|
Provision for foreclosure losses |
|
|
|
125,113 |
|
|
|
|
29,047 |
|
|
|
|
11,488 |
|
Transfers (a) |
|
|
|
41 |
|
|
|
|
4,531 |
|
|
|
|
- |
|
Charge-offs |
|
|
|
(57,508 |
) |
|
|
|
|
(13,612 |
) |
|
|
|
|
(11,848 |
) |
|
Recoveries |
|
|
|
1,130 |
|
|
|
|
830 |
|
|
|
|
2,484 |
|
|
Ending balance |
|
|
$ |
|
105,732 |
|
|
|
$ |
|
36,956 |
|
|
|
$ |
|
16,160 |
|
|
|
(a) |
|
|
|
Primarily represents reserves established against servicing advances for which the related MSR has been legally sold. Amounts are transferred to the foreclosure reserve when the advances are delivered to the buyer, but recourse to FHN remains.
|
GOODWILL AND ASSESSMENT OF IMPAIRMENT
FHNs policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when
the carrying amount of goodwill exceeds its implied fair value. FHN also allocates goodwill to the disposal of portions of reporting units in accordance with applicable accounting standards. FHN performs impairment analysis when these disposal actions indicate that an impairment of goodwill may exist. In third
quarter 2009, FHN agreed to sell FTN Financials institutional equity research group, FTN ECM. In conjunction with this agreement, FHN recognized a $14.3 million impairment of associated goodwill which is reflected in the discontinued operations, net of tax line on the Consolidated Statements of Income. During
first quarter 2010, the contracted sale of FTN ECM failed to close, and FHN exited this business which will result in an additional goodwill impairment of $3.3 million. Additionally, in fourth quarter 2009, FHN recognized a $2.3 million goodwill impairment associated with the disposal of the remaining Atlanta
insurance business that was excluded from the sale. Goodwill of $10.3 million was included in the calculation of loss on divestiture for the sales of the Atlanta insurance business and FERP.
Accounting standards require management to estimate the fair value of each reporting unit in assessing impairment at least annually. As such, FHN engages an independent valuation to assist in the computation of the fair value estimates of each reporting unit as part of its annual assessment. An independent
assessment was completed in 2009 and utilized three separate methodologies, applying a weighted average to each in order to determine fair value for each reporting unit. The valuation as of October 1, 2009 indicated no goodwill impairment in any of the reporting units. Other than the goodwill impairments
previously disclosed, as of the measurement
58
FIRST HORIZON NATIONAL CORPORATION
date, the fair values of both Regional Banking and Capital Markets were substantially greater than their carrying values.
Management believes the accounting estimates associated with determining fair value as part of the goodwill impairment test is a critical accounting estimate because estimates and assumptions are made about FHNs future performance and cash flows, as well as other prevailing market factors (interest rates,
economic trends, etc.). FHNs policy allows management to make the determination of fair value using appropriate valuation methodologies and inputs, including utilization of market observable data and internal cash flow models. Independent third parties may be engaged to assist in the valuation process. If a
charge to operations for impairment results, this amount would be reported separately as a component of noninterest expense. This critical accounting estimate applies to the Regional Banking and Capital Markets business segments. The National Specialty Lending, Mortgage Banking, and Corporate segments have
no associated goodwill. Reporting units have been defined as the same level as the operating business segments.
The impairment testing process conducted by FHN begins by assigning net assets and goodwill to each reporting unit. FHN then completes step one of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or carrying
amount) of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and step two of the impairment test is not necessary. If the carrying amount of a reporting unit
exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the carrying amount of the reporting units goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is computed by assuming all assets
and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step two. An impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair
value.
In connection with obtaining the independent valuation, management provided certain data and information that was utilized in the estimation of fair value. This information included budgeted and forecasted earnings of FHN at the reporting unit level. Management believes that this information is a critical
assumption underlying the estimate of fair value. Other assumptions critical to the process were also made, including discount rates, asset and liability growth rates, and other income and expense estimates.
While management uses the best information available to estimate future performance for each reporting unit, future adjustments to managements projections may be necessary if conditions differ substantially from the assumptions used in making the estimates.
INCOME TAXES
FHN is subject to the income tax laws of the U.S. and the states and municipalities in which it operates. FHN accounts for income taxes in accordance with ASC 740, Income Taxes.
Income tax expense consists of both current and deferred taxes. Current income tax expense is an estimate of taxes to be paid or refunded for the current period and includes income tax expense related to uncertain tax positions. The balance sheet method is used to determine deferred taxes. Under this method,
the net deferred tax asset or liability is based on the tax consequences of differences between the book and tax bases of assets and liabilities, which are determined by applying enacted statutory rates applicable to future years to these temporary differences. Deferred taxes can be affected by changes in tax rates
applicable to future years, either as a result of statutory changes or business changes that may change the jurisdictions in which taxes are paid. Additionally, deferred tax assets are subject to a more likely than not test. If the more likely than not test is not met a valuation allowance must be established against
the deferred tax asset. On December 31, 2009, FHNs gross DTA was $582.0 million with no related valuation allowance. Given FHNs current projections of future taxable income, potential tax strategies, and reversing deferred tax liabilities, FHN believes that it is more likely than not that the full DTA will be
realized. This assertion could change if FHN experiences greater losses in the near-future than management currently anticipates.
59
FIRST HORIZON NATIONAL CORPORATION
The income tax laws of the jurisdictions in which FHN operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, FHN must make judgments and interpretations about the application of these
inherently complex tax laws. Interpretations may be subjected to review during examination by taxing authorities and disputes may arise over the respective tax positions. FHN attempts to resolve disputes that may arise during the tax examination and audit process. However, certain disputes may ultimately have to
be resolved through the federal and state court systems.
FHN monitors relevant tax authorities and revises estimates of accrued income taxes on a quarterly basis. Changes in estimates may occur due to changes in income tax laws and their interpretation by the courts and regulatory authorities. Revisions of estimates may also result from income tax planning and from
the resolution of income tax controversies. Such revisions in estimates may be material to operating results for any given period. See Note 16 - Income Taxes for a further description of our provision for income taxes and related income tax assets and liabilities.
CONTINGENT LIABILITIES
A liability is contingent if the amount or outcome is not presently known, but may become known in the future as a result of the occurrence of some uncertain future event. FHN estimates its contingent liabilities based on managements estimates about the probability of outcomes and their ability to estimate the
range of exposure. Accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be confirmed by some future event. As part of the estimation process,
management is required to make assumptions about matters that are by their nature highly uncertain.
The assessment of contingent liabilities, including legal contingencies, involves the use of critical estimates, assumptions, and judgments. Managements estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can
be no assurance that future events, such as court decisions or decisions of arbitrators, will not differ from managements assessments. Whenever practicable, management consults with third party experts (attorneys, accountants, claims administrators, etc.) to assist with the gathering and evaluation of information
related to contingent liabilities. Based on internally and/or externally prepared evaluations, management makes a determination whether the potential exposure requires accrual in the financial statements.
60
FIRST HORIZON NATIONAL CORPORATION
QUARTERLY FINANCIAL INFORMATION
Table 25 - Summary of Quarterly Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions except per share data) |
|
2009 |
|
2008 |
|
Fourth Quarter |
|
Third Quarter |
|
Second Quarter |
|
First Quarter |
|
Fourth Quarter |
|
Third Quarter |
|
Second Quarter |
|
First Quarter |
|
Summary income information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
$ |
|
231.0 |
|
|
|
$ |
|
236.4 |
|
|
|
$ |
|
255.5 |
|
|
|
$ |
|
270.1 |
|
|
|
$ |
|
331.6 |
|
|
|
$ |
|
383.2 |
|
|
|
$ |
|
415.5 |
|
|
|
$ |
|
476.4 |
|
Interest expense |
|
|
|
41.1 |
|
|
|
|
45.5 |
|
|
|
|
56.4 |
|
|
|
|
73.5 |
|
|
|
|
126.6 |
|
|
|
|
160.1 |
|
|
|
|
176.6 |
|
|
|
|
248.4 |
|
Provision for loan losses |
|
|
|
135.0 |
|
|
|
|
185.0 |
|
|
|
|
260.0 |
|
|
|
|
300.0 |
|
|
|
|
280.0 |
|
|
|
|
340.0 |
|
|
|
|
220.0 |
|
|
|
|
240.0 |
|
Noninterest income |
|
|
|
246.2 |
|
|
|
|
303.8 |
|
|
|
|
284.2 |
|
|
|
|
399.3 |
|
|
|
|
326.4 |
|
|
|
|
296.1 |
|
|
|
|
387.1 |
|
|
|
|
440.9 |
|
Noninterest expense |
|
|
|
390.3 |
|
|
|
|
349.9 |
|
|
|
|
402.5 |
|
|
|
|
407.8 |
|
|
|
|
334.6 |
|
|
|
|
387.5 |
|
|
|
|
450.4 |
|
|
|
|
421.9 |
|
Income/(loss) from continuing operations |
|
|
|
(51.2 |
) |
|
|
|
|
(24.8 |
) |
|
|
|
|
(105.2 |
) |
|
|
|
|
(64.4 |
) |
|
|
|
|
(51.9 |
) |
|
|
|
|
(120.5 |
) |
|
|
|
|
(15.8 |
) |
|
|
|
|
13.8 |
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(1.7 |
) |
|
|
|
|
(10.2 |
) |
|
|
|
|
(0.3 |
) |
|
|
|
|
(0.6 |
) |
|
|
|
|
0.4 |
|
|
|
|
(1.7 |
) |
|
|
|
|
(0.4 |
) |
|
|
|
|
(1.8 |
) |
|
Net income/(loss) |
|
|
|
(52.8 |
) |
|
|
|
|
(35.0 |
) |
|
|
|
|
(105.5 |
) |
|
|
|
|
(65.1 |
) |
|
|
|
|
(51.5 |
) |
|
|
|
|
(122.2 |
) |
|
|
|
|
(16.2 |
) |
|
|
|
|
12.0 |
|
Income/(loss) available to common shareholders |
|
|
|
(70.6 |
) |
|
|
|
|
(52.9 |
) |
|
|
|
|
(123.2 |
) |
|
|
|
|
(82.8 |
) |
|
|
|
|
(63.1 |
) |
|
|
|
|
(125.1 |
) |
|
|
|
|
(19.1 |
) |
|
|
|
|
7.9 |
|
|
Earnings/(loss) per common share from continuing operations |
|
|
$ |
|
(0.31 |
) |
|
|
|
$ |
|
(0.19 |
) |
|
|
|
$ |
|
(0.56 |
) |
|
|
|
$ |
|
(0.37 |
) |
|
|
|
$ |
|
(0.29 |
) |
|
|
|
$ |
|
(0.56 |
) |
|
|
|
$ |
|
(0.10 |
) |
|
|
|
$ |
|
0.07 |
|
Earnings/(loss) per common share |
|
|
|
(0.32 |
) |
|
|
|
|
(0.24 |
) |
|
|
|
|
(0.56 |
) |
|
|
|
|
(0.37 |
) |
|
|
|
|
(0.29 |
) |
|
|
|
|
(0.57 |
) |
|
|
|
|
(0.10 |
) |
|
|
|
|
0.06 |
|
Diluted earnings/(loss) per common share from continuing operations |
|
|
|
(0.31 |
) |
|
|
|
|
(0.19 |
) |
|
|
|
|
(0.56 |
) |
|
|
|
|
(0.37 |
) |
|
|
|
|
(0.29 |
) |
|
|
|
|
(0.56 |
) |
|
|
|
|
(0.10 |
) |
|
|
|
|
0.07 |
|
Diluted earnings/(loss) per common share |
|
|
|
(0.32 |
) |
|
|
|
|
(0.24 |
) |
|
|
|
|
(0.56 |
) |
|
|
|
|
(0.37 |
) |
|
|
|
|
(0.29 |
) |
|
|
|
|
(0.57 |
) |
|
|
|
|
(0.10 |
) |
|
|
|
|
0.06 |
|
|
Common stock information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High (a) |
|
|
$ |
|
13.98 |
|
|
|
$ |
|
14.55 |
|
|
|
$ |
|
13.12 |
|
|
|
$ |
|
10.65 |
|
|
|
$ |
|
11.05 |
|
|
|
$ |
|
13.24 |
|
|
|
$ |
|
13.25 |
|
|
|
$ |
|
19.59 |
|
Low (a) |
|
|
|
11.65 |
|
|
|
|
10.81 |
|
|
|
|
10.16 |
|
|
|
|
6.94 |
|
|
|
|
6.91 |
|
|
|
|
4.47 |
|
|
|
|
6.68 |
|
|
|
|
12.41 |
|
Period-end (a) |
|
|
|
13.40 |
|
|
|
|
13.03 |
|
|
|
|
11.64 |
|
|
|
|
10.25 |
|
|
|
|
9.83 |
|
|
|
|
8.55 |
|
|
|
|
6.75 |
|
|
|
|
12.41 |
|
Cash dividends declared per share (a)(b) |
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
0.18 |
|
|
|
|
0.18 |
|
Stock dividend rate declared per share (b) |
|
|
|
1.4971 |
% |
|
|
|
|
1.5901 |
% |
|
|
|
|
1.5782 |
% |
|
|
|
|
2.6673 |
% |
|
|
|
|
1.8370 |
% |
|
|
|
|
3.0615 |
% |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
Per share data restated for stock dividends distributed through January 1,2010. |
|
(b) |
|
|
|
All dividends declared in 2009 and in the third and fourth quarters of 2008 paid in shares.
|
ACCOUNTING CHANGES ISSUED BUT NOT CURRENTLY EFFECTIVE
In January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06), which updates ASC 820 to require disclosure of significant transfers into and out of Level 1 and Level 2 of the fair value hierarchy, as well as disclosure of an entitys
policy for determining when transfers between all levels of the hierarchy are recognized. ASC 820, as amended, also provides enhanced disclosure requirements regarding purchases, sales, issuances, and settlements related to recurring Level 3 measurements, and requires separate disclosure in the Level 3
reconciliation of total gains and losses recognized in other comprehensive income. The updated provisions of ASC 820 require that fair value measurement disclosures be provided by each class of assets and liabilities, and that disclosures providing a description of the valuation techniques and inputs used to
measure fair value be included for both recurring and nonrecurring fair value measurements classified as either Level 2 or Level 3. The provisions of ASU 2010-06 are effective for periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances
and settlements on a gross basis which will be effective for periods beginning after December 15, 2010. Comparative disclosures are required only for periods ending subsequent to initial adoption. FHN is currently assessing the effects of adopting the provisions of ASU 2010-06.
In June 2009, the FASB issued guidance whose provisions have been subsequently reissued as Accounting Standards Update 2009-16, Accounting for Transfers of Financial Assets (ASU 2009-16). ASU 2009-16 updates ASC 860 to provide for the removal of the qualifying special purpose entity (QSPE) concept
from GAAP, resulting
61
FIRST HORIZON NATIONAL CORPORATION
in the evaluation of all former QSPEs for consolidation on and after January 1, 2010 in accordance with ASC 810. The amendments to ASC 860 modify the criteria for achieving sale accounting for transfers of financial assets and define the term participating interest to establish specific conditions for reporting a
transfer of a portion of a financial asset as a sale. The updated provisions of ASC 860 also provide that a transferor should recognize and initially measure at fair value all assets obtained (including a transferors beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a
sale. ASC 860, as amended, requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The provisions of ASU 2009-16 are effective
prospectively for new transfers of financial assets occurring in fiscal years beginning after November 15, 2009, and in interim periods within those fiscal years. ASC 860s amended disclosure requirements should be applied to transfers that occurred both before and after the effective date of the Codification update,
with comparative disclosures required only for periods subsequent to initial adoption for those disclosures not previously required under the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The effect of adopting the provisions of ASU 2009-16 will not
be material to FHN.
In June 2009, the FASB issued guidance whose provisions have been subsequently reissued as Accounting Standards Update 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-17 amends ASC 810 to revise the criteria for determining
the primary beneficiary of a variable interest entity (VIE) by replacing the quantitative-based risks and rewards test previously required with a qualitative analysis. While ASC 810, as amended, retains the previous guidance in ASC 810 which requires a reassessment of whether an entity is a VIE only when certain
triggering events occur, it adds an additional criteria which triggers a reassessment of an entitys status when an event occurs such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most
significantly impact the entitys economic performance. Additionally, the amendments to ASC 810 require continual reconsideration of conclusions regarding which interest holder is the VIEs primary beneficiary. Following the Codification update, ASC 810 will require separate presentation on the face of the balance
sheet of the assets of a consolidated VIE that can only be used to settle the VIEs obligations and the liabilities of a consolidated VIE for which creditors or beneficial interest holders have no recourse to the general credit of the primary beneficiary (e.g., consolidated residential mortgage securitization trusts). ASC
810, as amended, also requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The provisions of ASU 2009-17 are effective for
periods beginning after November 15, 2009 and require reevaluation under ASC 810s amended consolidation requirements of all QSPEs and entities currently subject to ASC 810 as of the beginning of the first annual period that begins after November 15, 2009. If consolidation of a VIE is required upon initial
adoption, the assets, liabilities, and noncontrolling interests of the VIE should be measured at their carrying amounts as if ASC 810, as amended, had been applied from inception of the VIE, with any difference between the net amounts recognized and the amount of any previously recognized interests reflected as
a cumulative effect adjustment to undivided profits. However, if determining the carrying amounts is not practicable, the assets, liabilities, and noncontrolling interests of the VIE may be measured at fair value. Further, if determining the carrying amounts is not practicable, and if the activities of the VIE are primarily
related to securitizations or other forms of asset-backed financings and the assets of the VIE can be used only to settle obligations of the entity, then the assets and liabilities of the VIE may be measured at their unpaid principal balances. The fair value option provided under ASC 825 may also be elected for
financial assets and financial liabilities requiring consolidation as a result of initial adoption, provided that the election is made for all eligible financial assets and financial liabilities of the VIE. If initial application of the amendments to ASC 810 results in deconsolidation of a VIE, any retained interest in the VIE should
be measured at its carrying value as if ASC 810, as amended, had been applied from inception of the VIE. Comparative disclosures are required only for periods subsequent to initial adoption for those disclosures not previously required under the Codification update to ASC 810 and ASC 860 which was effective for
periods ending after December 15, 2008.
FHN is continuing to assess the effects of adopting the provisions of ASU 2009-17 on all of its proprietary residential mortgage securitization trusts based on the size and priority of interests retained. Based on its current level of involvement, upon adoption of the Codification update to ASC 810 FHN anticipates that
consumer loans with an aggregate unpaid principal balance of approximately $250 million will be prospectively consolidated as the retention of MSR and other retained interests, including residual interests and subordinated bonds, results in FHN
62
FIRST HORIZON NATIONAL CORPORATION
being considered the related trusts primary beneficiary under the qualitative analysis required by ASC 810, as amended. Additionally, FHN has determined that calculation of carrying values is not practicable and thus it anticipates using the unpaid principal balance measurement methodology upon adoption, with
the ALLL related to the newly consolidated loans determined using FHNs standard practices. Upon adoption of the provisions of ASU 2009-17, MSR and trading assets held in relation to the newly consolidated trusts will be removed from the Consolidated Statements of Condition. FHN expects to recognize an
increase to the opening balance of undivided profits approximating $6 million for the cumulative effect of adopting the amendments to ASC 810. An adjustment to the ALLL through provision expense approximating $10 million ($6 million net of tax) is expected to be recognized by FHN in first quarter 2010 in
relation to the newly consolidated loans.
NON-GAAP Information
The following table provides a reconciliation of non-GAAP items presented in this MD&A to the most comparable GAAP presentation.
Table 26 - Non-GAAP to GAAP Reconciliation
|
|
|
|
|
|
|
|
|
(Millions) |
|
2009 |
|
2008 |
|
2007 |
|
Tangible Common Equity (Non-GAAP) |
|
|
|
|
|
|
(A) Total equity (GAAP) |
|
|
$ |
|
3,302.5 |
|
|
|
$ |
|
3,574.6 |
|
|
|
$ |
|
2,430.9 |
|
Less: Preferred stock capital surplus CPP |
|
|
|
798.7 |
|
|
|
|
782.7 |
|
|
|
|
- |
|
Less: Noncontrolling interest (a) |
|
|
|
295.2 |
|
|
|
|
295.2 |
|
|
|
|
295.3 |
|
|
(B) Total common equity |
|
|
|
2,208.6 |
|
|
|
|
2,496.7 |
|
|
|
|
2,135.6 |
|
Less: Intangible assets (GAAP) (b) |
|
|
|
203.8 |
|
|
|
|
237.5 |
|
|
|
|
249.3 |
|
|
(C) Tangible common equity (Non-GAAP) |
|
|
|
2,004.8 |
|
|
|
|
2,259.2 |
|
|
|
|
1,886.3 |
|
Less: Unrealized gains on AFS securities, net of tax |
|
|
|
64.9 |
|
|
|
|
42.3 |
|
|
|
|
20.5 |
|
|
(D) Adjusted tangible common equity (Non-GAAP) (c) |
|
|
|
1,939.9 |
|
|
|
|
2,216.9 |
|
|
|
|
1,865.8 |
|
|
Tangible Assets (Non-GAAP) |
|
|
|
|
|
|
(E) Total assets (GAAP) |
|
|
$ |
|
26,068.7 |
|
|
|
$ |
|
31,022.0 |
|
|
|
$ |
|
37,015.5 |
|
Less: Intangible assets (GAAP) (b) |
|
|
|
203.8 |
|
|
|
|
237.5 |
|
|
|
|
249.3 |
|
|
(F) Tangible assets (Non-GAAP) |
|
|
|
25,864.9 |
|
|
|
|
30,784.5 |
|
|
|
|
36,766.2 |
|
|
Period-end Shares Outstanding |
|
|
|
|
|
|
(G) Period-end shares outstanding |
|
|
|
222.0 |
|
|
|
|
220.7 |
|
|
|
|
142.6 |
|
|
Tier 1 Common (Non-GAAP) |
|
|
|
|
|
|
(H) Tier 1 capital (d) |
|
|
$ |
|
3,507.8 |
|
|
|
$ |
|
3,784.2 |
|
|
|
$ |
|
2,459.5 |
|
Less: Preferred stock capital surplus CPP |
|
|
|
798.7 |
|
|
|
|
782.7 |
|
|
|
|
- |
|
Less: Noncontrolling interest FTBNA preferred stock (a) (e) |
|
|
|
294.8 |
|
|
|
|
294.8 |
|
|
|
|
294.8 |
|
Less: Trust preferred (f) |
|
|
|
300.0 |
|
|
|
|
300.0 |
|
|
|
|
300.0 |
|
|
(I) Tier 1 common (Non-GAAP) |
|
|
|
2,114.3 |
|
|
|
|
2,406.7 |
|
|
|
|
1,864.7 |
|
|
Risk Weighted Assets |
|
|
|
|
|
|
(J) Risk weighted assets (d) |
|
|
$ |
|
21,400.4 |
|
|
|
$ |
|
25,185.4 |
|
|
|
$ |
|
30,271.9 |
|
|
Ratios |
|
|
|
|
|
|
(C)/(F) |
|
Tangible common equity to tangible assets (TCE/TA) (Non-GAAP) |
|
|
|
7.75 |
% |
|
|
|
|
7.34 |
% |
|
|
|
|
5.13 |
% |
|
(A)/(E) |
|
Total period-end equity to period-end assets (GAAP) |
|
|
|
12.67 |
% |
|
|
|
|
11.52 |
% |
|
|
|
|
6.57 |
% |
|
(C)/(G) |
|
Tangible book value per common share (Non-GAAP) |
|
|
$ |
|
9.03 |
|
|
|
$ |
|
10.24 |
|
|
|
$ |
|
13.23 |
|
(B)/(G) |
|
Book value per common share (GAAP) |
|
|
$ |
|
9.95 |
|
|
|
$ |
|
11.31 |
|
|
|
$ |
|
14.97 |
|
(I)/(J) |
|
Tier 1 common to risk weighted assets (Non-GAAP) |
|
|
|
9.88 |
% |
|
|
|
|
9.56 |
% |
|
|
|
|
6.16 |
% |
|
(H)/(E) |
|
Tier 1 capital to total assets (GAAP) |
|
|
|
13.46 |
% |
|
|
|
|
12.20 |
% |
|
|
|
|
6.64 |
% |
|
(D)/(J) |
|
Adjusted tangible common equity to risk weighted assets (TCE/RWA) (Non-GAAP) (c) |
|
|
|
9.06 |
% |
|
|
|
|
8.80 |
% |
|
|
|
|
6.16 |
% |
|
|
|
(a) |
|
|
|
Included in total equity on the Consolidated Statements of Condition. |
|
(b) |
|
|
|
Includes goodwill and other intangible assets, net of amortization. |
|
(c) |
|
|
|
See Glossary of Terms for definition of ratio. |
|
(d) |
|
|
|
Defined by and calculated in conformity with bank regulations. |
|
(e) |
|
|
|
Represents FTBNA preferred stock included in noncontrolling interest. |
|
(f) |
|
|
|
Included in term borrowings on the Consolidated Statements of Condition.
|
63
FIRST HORIZON NATIONAL CORPORATION
GLOSSARY OF SELECTED FINANCIAL TERMS
Adjusted tangible common equity to risk weighted assets (TCE/RWA) Common equity excluding intangible assets and unrealized gains/losses on available for sale securities and cash flow hedges divided by risk weighted assets.
Allowance for Loan Losses Valuation reserve representing the amount considered by management to be adequate to cover estimated inherent losses in the loan portfolio.
Basis Point The equivalent of one-hundredth of one percent. One hundred basis points equals one percent. This unit is generally used to measure movements in interest yields and rates.
Book Value Per Common Share A ratio determined by dividing common equity at the end of a period by the number of common shares outstanding at the end of that period.
Commercial Paper A short-term unsecured debt obligation of the parent company with maturities typically of less than 90 days.
Commercial and Standby Letters of Credit Commercial letters of credit are issued or confirmed by an entity to ensure the payment of its customers payables and receivables. Standby letters of credit are issued by an entity to ensure its customers performance in dealing with others.
Commitment to Extend Credit Agreements to make or acquire a loan or lease as long as agreed-upon terms (e.g., expiration date, covenants, or notice) are met. Generally these commitments have fixed expiration dates or other termination clauses and may require payment of a fee.
Core Deposits Core deposits consist of all interest-bearing and noninterest-bearing deposits, except certificates of deposit over $100,000. They include checking interest deposits, money market deposit accounts, time and other savings, plus demand deposits.
Derivative Financial Instrument A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, or financial or commodity indices.
Diluted Earnings Per Common Share Net income available to common shareholders, divided by weighted average shares outstanding plus the effect of common stock equivalents that have the potential to be converted into common shares.
Earning Assets Assets that generate interest or dividend income or yield-related fee income, such as loans and investment securities.
Earnings Per Common Share Net income available to common shareholders, divided by the weighted average number of common shares.
Excess Interest-Only Strip Financial asset representing the right to receive earnings from serviced assets that exceeds contractually specified servicing fees and are legally separable from the base servicing rights.
Fully Taxable Equivalent (FTE) Reflects the rate of tax-exempt income adjusted to a level that would yield the same after-tax income had that income been subject to taxation.
Individually Impaired Loans Generally, commercial loans over $1 million that are not expected to pay all contractually due principal and interest, and consumer loans that have experienced a troubled debt restructuring and are individually evaluated for impairment. These loans are generally written
down to an estimate of collateral value less cost to sell.
Interest-Only Strip Mortgage security consisting of the interest rate portion of a stripped mortgage backed security.
64
FIRST HORIZON NATIONAL CORPORATION
GLOSSARY OF SELECTED FINANCIAL TERMS (continued)
Interest Rate Caps and Floors Contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market interest rate exceeds a fixed upper capped level or falls below a fixed lower floor level on specified future dates.
Interest Rate Forward Contracts Contracts representing commitments either to purchase or sell at a specified future date a specified security or financial instrument at a specified price, and may be settled in cash or through delivery.
Interest Rate Option A contract that grants the holder (purchaser), for a fee, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer (seller) of the option.
Interest Rate Swap An agreement in which two entities agree to exchange, at specified intervals, interest payment streams calculated on an agreed-upon notional principal amount with at least one stream based on a floating rate index.
Interest Rate Swaptions Are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.
Leverage Ratio Ratio consisting of Tier 1 capital divided by quarterly average assets adjusted for certain unrealized gains/(losses) on available for sale securities, goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets.
Lower of Cost or Market (LOCOM) A method of accounting for certain assets by recording them at the lower of their historical cost or their current market value.
Market Capitalization Market value of a company is computed by multiplying the number of shares outstanding by the current stock price.
Mortgage Backed Securities Investment securities backed by a pool of mortgages or trust deeds. Principal and interest payments on the underlying mortgages are used to pay principal and interest on the securities.
Mortgage Pipeline Interest rate commitments made to customers on mortgage loans that have not yet been closed and funded.
Mortgage Warehouse A mortgage loan that has been closed and funded and is awaiting sale and delivery into the secondary market.
Mortgage Servicing Rights (MSR) The right to service mortgage loans, generally owned by someone else, for a fee. Loan servicing includes collecting payments; remitting funds to investors, insurance companies, and taxing authorities; collecting delinquent payments; and foreclosing on properties when
necessary.
Net Interest Income (NII) Interest income less interest expense.
Net Interest Margin (NIM) Expressed as a percentage, net interest margin is a ratio computed by dividing fully taxable equivalent net interest income by average earning assets.
Net Interest Spread The difference between the average yield earned on earning assets on a fully taxable equivalent basis and the average rate paid for interest-bearing liabilities.
Nonaccrual Loans Loans on which interest accruals have been discontinued due to the borrowers financial difficulties. Interest income on these loans is reported on a cash basis as it is collected after recovery of principal.
Non-GAAP Certain measures contained within MD&A are not formally defined by GAAP or codified in the federal banking regulations. A reconciliation of these Non-GAAP measures may be found in table 26 of MD&A.
65
FIRST HORIZON NATIONAL CORPORATION
GLOSSARY OF SELECTED FINANCIAL TERMS (continued)
Nonperforming Assets Interest-earning assets on which interest income is not being accrued, real estate properties acquired through foreclosure and repossessed assets.
Origination Fees A fee charged to the borrower by the lender to originate a loan. Usually stated as a percentage of the face value of the loan.
Provision for Loan Losses The periodic charge to earnings for inherent losses in the loan portfolio.
Purchase Obligation An agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
Purchased Funds The combination of certificates of deposit greater than $100,000, federal funds purchased, securities sold under agreement to repurchase, commercial paper, and other short-term borrowings.
Repurchase Agreement A method of short-term financing where one party agrees to buy back, at a future date (generally overnight) and an agreed-upon price, a security it sells to another party.
Residual-Interest Certificates Financial assets which represent rights to receive earnings to the extent of excess income generated by the underlying loan collateral of certain mortgage-backed securities, which is not needed to meet contractual obligations of senior security holders.
Return on Average Assets (ROA) A measure of profitability that is calculated by dividing net income by total average assets.
Return on Average Common Shareholders Equity (ROE) A measure of profitability that indicates what an institution earned on its shareholders investment. ROE is calculated by dividing net income available to common shareholders by total average common equity.
Risk-Adjusted Assets A regulatory risk-based calculation that takes into account the broad differences in risks among a banking organizations assets and off-balance sheet financial instruments.
Tangible Book Value per Common Share Ratio consisting of tangible common equity (TCE) over period-end common shares outstanding.
Tangible Common Equity to Tangible Assets (TCE/TA) A ratio which may be used to evaluate a companys capital position. TCE/TA includes common equity less goodwill and other intangible assets over tangible assets. Tangible assets includes a companys total assets less goodwill and other intangible
assets.
Tier 1 Capital Ratio Ratio consisting of shareholders equity adjusted for certain unrealized gains/(losses) on available for sale securities, reduced by goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets divided by risk-adjusted assets.
Tier 1 Common A measure of a companys capital position, which includes Tier 1 capital less preferred stock amounts.
Total Capital Ratio Ratio consisting of Tier 1 capital plus the allowable portion of the allowance for loan losses and qualifying subordinated debt divided by risk-adjusted assets.
66
FIRST HORIZON NATIONAL CORPORATION
REPORT OF MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of First Horizon National Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. First Horizon National Corporations internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Even effective internal controls, no matter how well designed, have inherent limitations such as the possibility of human error or of circumvention or overriding of controls, and consideration of cost in relation to benefit of a control. Moreover, effectiveness must necessarily be considered according to the existing state
of the art of internal control. Further, because of changes in conditions, the effectiveness of internal controls may diminish over time.
Management assessed the effectiveness of First Horizon National Corporations internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based on our assessment and those criteria, management believes that First Horizon National Corporation maintained effective internal control over financial reporting as of December 31, 2009.
First Horizon National Corporations independent auditors have issued an attestation report on First Horizon National Corporations internal control over financial reporting. That report appears on the following page.
67
FIRST HORIZON NATIONAL CORPORATION
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
First Horizon National Corporation:
We have audited First Horizon National Corporations (the Company) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, First Horizon National Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of First Horizon National Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders
equity and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 26, 2010 expressed an unqualified opinion on those consolidated financial statements.
![](kpmgllpsig.jpg)
Memphis, Tennessee
February 26, 2010
68
FIRST HORIZON NATIONAL CORPORATION
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
First Horizon National Corporation:
We have audited the accompanying consolidated statements of condition of First Horizon National Corporation and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders equity and cash flows for each of the years in the three-year period
ended December 31, 2009. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Horizon National Corporation as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2009, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2010 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
![](kpmgllpsig.jpg)
Memphis, Tennessee
February 26, 2010
69
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
|
|
|
|
|
(Dollars in thousands) |
|
December 31 |
|
2009 |
|
2008 |
|
Assets: |
|
|
|
|
Cash and due from banks (Note 18) |
|
|
$ |
|
465,712 |
|
|
|
$ |
|
552,423 |
|
Federal funds sold and securities purchased under agreements to resell |
|
|
|
452,883 |
|
|
|
|
772,357 |
|
|
Total cash and cash equivalents |
|
|
|
918,595 |
|
|
|
|
1,324,780 |
|
|
Interest-bearing cash |
|
|
|
539,300 |
|
|
|
|
207,792 |
|
Trading securities |
|
|
|
699,900 |
|
|
|
|
945,766 |
|
Loans held for sale |
|
|
|
452,501 |
|
|
|
|
566,654 |
|
Securities available for sale (Note 3) |
|
|
|
2,694,468 |
|
|
|
|
3,125,153 |
|
Loans, net of unearned income (Note 4) |
|
|
|
18,123,884 |
|
|
|
|
21,278,190 |
|
Less: Allowance for loan losses |
|
|
|
896,914 |
|
|
|
|
849,210 |
|
|
Total net loans |
|
|
|
17,226,970 |
|
|
|
|
20,428,980 |
|
|
Mortgage servicing rights, net (Note 6) |
|
|
|
302,611 |
|
|
|
|
376,844 |
|
Goodwill (Note 7) |
|
|
|
165,528 |
|
|
|
|
192,408 |
|
Other intangible assets, net (Note 7) |
|
|
|
38,256 |
|
|
|
|
45,082 |
|
Capital markets receivables |
|
|
|
334,404 |
|
|
|
|
1,178,932 |
|
Premises and equipment, net (Note 5) |
|
|
|
313,824 |
|
|
|
|
333,931 |
|
Real estate acquired by foreclosure |
|
|
|
125,190 |
|
|
|
|
125,538 |
|
Other assets |
|
|
|
2,257,131 |
|
|
|
|
2,170,120 |
|
|
Total assets |
|
|
$ |
|
26,068,678 |
|
|
|
$ |
|
31,021,980 |
|
|
Liabilities and equity: |
|
|
|
|
Deposits: |
|
|
|
|
Savings |
|
|
$ |
|
4,847,709 |
|
|
|
$ |
|
4,824,939 |
|
Time deposits |
|
|
|
1,895,992 |
|
|
|
|
2,294,644 |
|
Other interest-bearing deposits |
|
|
|
3,169,474 |
|
|
|
|
1,783,362 |
|
Certificates of deposit $100,000 and more |
|
|
|
559,944 |
|
|
|
|
1,382,236 |
|
|
Interest-bearing |
|
|
|
10,473,119 |
|
|
|
|
10,285,181 |
|
Noninterest-bearing |
|
|
|
4,394,096 |
|
|
|
|
3,956,633 |
|
|
Total deposits |
|
|
|
14,867,215 |
|
|
|
|
14,241,814 |
|
|
Federal funds purchased and securities sold under agreements to repurchase (Note 9) |
|
|
|
2,874,353 |
|
|
|
|
1,751,079 |
|
Trading liabilities (Note 9) |
|
|
|
293,387 |
|
|
|
|
359,502 |
|
Other short-term borrowings and commercial paper (Note 9) |
|
|
|
761,758 |
|
|
|
|
4,279,689 |
|
Term borrowings |
|
|
|
2,190,544 |
|
|
|
|
4,022,297 |
|
Other collateralized borrowings |
|
|
|
700,589 |
|
|
|
|
745,363 |
|
|
Total long-term debt (Note 10) |
|
|
|
2,891,133 |
|
|
|
|
4,767,660 |
|
|
Capital markets payables |
|
|
|
292,975 |
|
|
|
|
1,115,428 |
|
Other liabilities |
|
|
|
785,389 |
|
|
|
|
932,176 |
|
|
Total liabilities |
|
|
|
22,766,210 |
|
|
|
|
27,447,348 |
|
|
Equity: |
|
|
|
|
First Horizon National Corporation Shareholders Equity: |
|
|
|
|
Preferred stock no par value (shares authorized 5,000,000; shares issued series CPP 866,540 on December 31, 2009 and 2008) (Note 12) |
|
|
|
798,685 |
|
|
|
|
782,680 |
|
Common stock $.625 par value (shares authorized 400,000,000; shares issued 221,980,210 on December 31, 2009 and 220,744,688 on December 31, 2008)* |
|
|
|
138,738 |
|
|
|
|
128,302 |
|
Capital surplus |
|
|
|
1,208,649 |
|
|
|
|
1,048,602 |
|
Capital surplus common stock warrant CPP (Note 12) |
|
|
|
83,860 |
|
|
|
|
83,860 |
|
Undivided profits |
|
|
|
891,580 |
|
|
|
|
1,387,854 |
|
Accumulated other comprehensive loss, net (Note 15) |
|
|
|
(114,209 |
) |
|
|
|
|
(151,831 |
) |
|
|
Total First Horizon National Corporation Shareholders Equity |
|
|
|
3,007,303 |
|
|
|
|
3,279,467 |
|
|
Noncontrolling interest (Note 12) |
|
|
|
295,165 |
|
|
|
|
295,165 |
|
Total equity |
|
|
|
3,302,468 |
|
|
|
|
3,574,632 |
|
|
Total liabilities and equity |
|
|
$ |
|
26,068,678 |
|
|
|
$ |
|
31,021,980 |
|
|
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.
|
* |
|
|
|
Outstanding shares have been restated to reflect stock dividends declared through December 31, 2009.
|
70
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
(Dollars in thousands except per share data) |
|
Year Ended December 31 |
|
2009 |
|
2008 |
|
2007 |
|
Interest income: |
|
|
|
|
|
|
Interest and fees on loans |
|
|
$ |
|
769,748 |
|
|
|
$ |
|
1,153,546 |
|
|
|
$ |
|
1,621,881 |
|
Interest on investment securities |
|
|
|
141,853 |
|
|
|
|
162,306 |
|
|
|
|
188,733 |
|
Interest on loans held for sale |
|
|
|
25,811 |
|
|
|
|
151,554 |
|
|
|
|
253,587 |
|
Interest on trading securities |
|
|
|
53,162 |
|
|
|
|
114,625 |
|
|
|
|
174,188 |
|
Interest on other earning assets |
|
|
|
2,365 |
|
|
|
|
24,694 |
|
|
|
|
67,570 |
|
|
Total interest income |
|
|
|
992,939 |
|
|
|
|
1,606,725 |
|
|
|
|
2,305,959 |
|
|
Interest expense: |
|
|
|
|
|
|
Interest on deposits: |
|
|
|
|
|
|
Savings |
|
|
|
38,886 |
|
|
|
|
79,921 |
|
|
|
|
115,954 |
|
Time deposits |
|
|
|
60,857 |
|
|
|
|
101,225 |
|
|
|
|
136,571 |
|
Other interest-bearing deposits |
|
|
|
5,012 |
|
|
|
|
13,863 |
|
|
|
|
25,852 |
|
Certificates of deposit $100,000 and more |
|
|
|
27,709 |
|
|
|
|
76,293 |
|
|
|
|
369,313 |
|
Interest on trading liabilities |
|
|
|
20,869 |
|
|
|
|
33,195 |
|
|
|
|
51,516 |
|
Interest on short-term borrowings |
|
|
|
12,955 |
|
|
|
|
189,568 |
|
|
|
|
294,074 |
|
Interest on long-term debt |
|
|
|
50,183 |
|
|
|
|
217,578 |
|
|
|
|
372,037 |
|
|
Total interest expense |
|
|
|
216,471 |
|
|
|
|
711,643 |
|
|
|
|
1,365,317 |
|
|
Net interest income |
|
|
|
776,468 |
|
|
|
|
895,082 |
|
|
|
|
940,642 |
|
Provision for loan losses |
|
|
|
880,000 |
|
|
|
|
1,080,000 |
|
|
|
|
272,765 |
|
|
Net interest income/(loss) after provision for loan losses |
|
|
|
(103,532 |
) |
|
|
|
|
(184,918 |
) |
|
|
|
|
667,877 |
|
|
Noninterest income: |
|
|
|
|
|
|
Capital markets |
|
|
|
632,093 |
|
|
|
|
483,526 |
|
|
|
|
284,236 |
|
Mortgage banking |
|
|
|
235,450 |
|
|
|
|
518,034 |
|
|
|
|
69,454 |
|
Deposit transactions and cash management |
|
|
|
163,761 |
|
|
|
|
179,034 |
|
|
|
|
175,271 |
|
Trust services and investment management |
|
|
|
29,482 |
|
|
|
|
33,821 |
|
|
|
|
40,335 |
|
Brokerage management fees and commissions |
|
|
|
26,934 |
|
|
|
|
32,234 |
|
|
|
|
37,830 |
|
Insurance commissions |
|
|
|
25,248 |
|
|
|
|
29,104 |
|
|
|
|
31,739 |
|
Debt securities gains, net |
|
|
|
- |
|
|
|
|
761 |
|
|
|
|
6,292 |
|
Equity securities gains/(losses), net |
|
|
|
(1,178 |
) |
|
|
|
|
65,349 |
|
|
|
|
(7,475 |
) |
|
Gains/(losses) on divestitures |
|
|
|
(9,183 |
) |
|
|
|
|
(19,019 |
) |
|
|
|
|
15,695 |
|
All other income and commissions (Note 14) |
|
|
|
130,924 |
|
|
|
|
127,574 |
|
|
|
|
153,435 |
|
|
Total noninterest income |
|
|
|
1,233,531 |
|
|
|
|
1,450,418 |
|
|
|
|
806,812 |
|
|
Adjusted gross income after provision for loan losses |
|
|
|
1,129,999 |
|
|
|
|
1,265,500 |
|
|
|
|
1,474,689 |
|
|
Noninterest expense: |
|
|
|
|
|
|
Employee compensation, incentives, and benefits |
|
|
|
777,581 |
|
|
|
|
928,982 |
|
|
|
|
932,443 |
|
Mortgage banking foreclosure and repurchase provision |
|
|
|
126,460 |
|
|
|
|
11,531 |
|
|
|
|
8,467 |
|
Foreclosed real estate |
|
|
|
66,197 |
|
|
|
|
21,471 |
|
|
|
|
7,581 |
|
Legal and professional fees |
|
|
|
66,121 |
|
|
|
|
62,173 |
|
|
|
|
52,879 |
|
Occupancy |
|
|
|
65,402 |
|
|
|
|
103,573 |
|
|
|
|
129,626 |
|
Operations services |
|
|
|
62,485 |
|
|
|
|
72,602 |
|
|
|
|
69,460 |
|
Deposit insurance premiums |
|
|
|
46,272 |
|
|
|
|
14,664 |
|
|
|
|
3,327 |
|
Contract employment |
|
|
|
36,217 |
|
|
|
|
33,515 |
|
|
|
|
21,510 |
|
Equipment rentals, depreciation, and maintenance |
|
|
|
34,305 |
|
|
|
|
56,744 |
|
|
|
|
72,402 |
|
Communications and courier |
|
|
|
26,960 |
|
|
|
|
38,183 |
|
|
|
|
41,965 |
|
Computer software |
|
|
|
26,883 |
|
|
|
|
30,318 |
|
|
|
|
53,860 |
|
Miscellaneous loan costs |
|
|
|
23,050 |
|
|
|
|
38,221 |
|
|
|
|
12,783 |
|
Amortization of intangible assets |
|
|
|
6,017 |
|
|
|
|
8,229 |
|
|
|
|
10,489 |
|
Goodwill impairment |
|
|
|
2,294 |
|
|
|
|
- |
|
|
|
|
84,084 |
|
All other expense (Note 14) |
|
|
|
184,289 |
|
|
|
|
174,136 |
|
|
|
|
267,486 |
|
|
Total noninterest expense |
|
|
|
1,550,533 |
|
|
|
|
1,594,342 |
|
|
|
|
1,768,362 |
|
|
Loss before income taxes |
|
|
|
(420,534 |
) |
|
|
|
|
(328,842 |
) |
|
|
|
|
(293,673 |
) |
|
Benefit for income taxes (Note 16) |
|
|
|
(174,945 |
) |
|
|
|
|
(154,405 |
) |
|
|
|
|
(139,909 |
) |
|
|
Loss from continuing operations |
|
|
|
(245,589 |
) |
|
|
|
|
(174,437 |
) |
|
|
|
|
(153,764 |
) |
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(12,846 |
) |
|
|
|
|
(3,534 |
) |
|
|
|
|
2,453 |
|
|
Net loss |
|
|
|
(258,435 |
) |
|
|
|
|
(177,971 |
) |
|
|
|
|
(151,311 |
) |
|
|
Net income attributable to noncontrolling interest |
|
|
|
11,402 |
|
|
|
|
14,016 |
|
|
|
|
18,835 |
|
|
Net loss attributable to controlling interest |
|
|
$ |
|
(269,837 |
) |
|
|
|
$ |
|
(191,987 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
|
Preferred stock dividends |
|
|
|
59,585 |
|
|
|
|
7,413 |
|
|
|
|
- |
|
|
Net loss available to common shareholders |
|
|
$ |
|
(329,422 |
) |
|
|
|
$ |
|
(199,400 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
|
Loss per common share from continuing operations (Note 17) |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
|
Diluted loss per common share from continuing operations (Note 17) |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
|
Loss per share available to common shareholders (Note 17) |
|
|
$ |
|
(1.49 |
) |
|
|
|
$ |
|
(1.03 |
) |
|
|
|
$ |
|
(1.20 |
) |
|
|
Diluted loss per share available to common shareholders (Note 17) |
|
|
$ |
|
(1.49 |
) |
|
|
|
$ |
|
(1.03 |
) |
|
|
|
$ |
|
(1.20 |
) |
|
|
Weighted average common shares (Note 17) |
|
|
|
220,412 |
|
|
|
|
194,322 |
|
|
|
|
142,027 |
|
|
Diluted average common shares (Note 17) |
|
|
|
220,412 |
|
|
|
|
194,322 |
|
|
|
|
142,027 |
|
|
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.
71
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
Common Shares |
|
Total |
|
Preferred Stock Capital Surplus |
|
Common Stock |
|
Capital Surplus |
|
Capital Surplus Warrants |
|
Undivided Profits |
|
Accumulated Other Comprehensive Income/(Loss) |
|
Noncontrolling Interest |
|
Balance, December 31, 2006 |
|
|
|
124,866 |
|
|
|
$ |
|
2,757,660 |
|
|
|
|
- |
|
|
|
$ |
|
78,041 |
|
|
|
$ |
|
312,521 |
|
|
|
|
- |
|
|
|
$ |
|
2,144,276 |
|
|
|
|
($72,448 |
) |
|
|
|
$ |
|
295,270 |
|
REIT preferred stock issuance |
|
|
|
- |
|
|
|
|
7 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
7 |
|
Adjustment to reflect change in accounting for tax benefits (ASC 740) |
|
|
|
- |
|
|
|
|
(862 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(862 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Adjustment to reflect change in accounting for purchases of life insurance (ASC 325-30) |
|
|
|
- |
|
|
|
|
(548 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(548 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Effects of changing pension and postretirement plans measurement dates pursuant to ASC 715: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost, interest cost, and expected return on plan assets for October 1 - December 31, net of tax |
|
|
|
- |
|
|
|
|
(711 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(711 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/loss for October 1 - December 31, net of tax |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(1,366 |
) |
|
|
|
|
1,366 |
|
|
|
|
- |
|
Additional gain for October 1 - December 31, net of tax |
|
|
|
- |
|
|
|
|
6,944 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6,944 |
|
|
|
|
- |
|
|
Beginning balance, as adjusted |
|
|
|
124,866 |
|
|
|
|
2,762,490 |
|
|
|
|
- |
|
|
|
|
78,041 |
|
|
|
|
312,521 |
|
|
|
|
- |
|
|
|
|
2,140,789 |
|
|
|
|
(64,138 |
) |
|
|
|
|
295,277 |
|
Net income/(loss) |
|
|
|
- |
|
|
|
|
(151,311 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(170,146 |
) |
|
|
|
|
- |
|
|
|
|
18,835 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized fair value adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
- |
|
|
|
|
(344 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(344 |
) |
|
|
|
|
- |
|
Securities available for sale |
|
|
|
- |
|
|
|
|
13,700 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
13,700 |
|
|
|
|
- |
|
Pension and postretirement plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost arising during period |
|
|
|
- |
|
|
|
|
(95 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(95 |
) |
|
|
|
|
- |
|
Net actuarial gain/(loss) arising during period |
|
|
|
- |
|
|
|
|
(2,284 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(2,284 |
) |
|
|
|
|
- |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/loss included in net periodic benefit cost |
|
|
|
- |
|
|
|
|
5,060 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
5,060 |
|
|
|
|
- |
|
|
|
|
Comprehensive income/(loss) |
|
|
|
- |
|
|
|
|
(135,274 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(170,146 |
) |
|
|
|
|
16,037 |
|
|
|
|
18,835 |
|
|
|
|
Cash dividends declared ($1.60/share) (a) |
|
|
|
- |
|
|
|
|
(227,722 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(227,722 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock repurchased |
|
|
|
(27 |
) |
|
|
|
|
(1,114 |
) |
|
|
|
|
- |
|
|
|
|
(17 |
) |
|
|
|
|
(1,097 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock issued for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock |
|
|
|
1,384 |
|
|
|
|
33,736 |
|
|
|
|
- |
|
|
|
|
865 |
|
|
|
|
32,871 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Tax benefit from incentive plans |
|
|
|
- |
|
|
|
|
6,258 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6,258 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Stock-based compensation expense |
|
|
|
- |
|
|
|
|
11,338 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
11,338 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Dividends paid to noncontrolling interest of subsidiary preferred stock |
|
|
|
- |
|
|
|
|
(18,835 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(18,835 |
) |
|
Other |
|
|
|
143 |
|
|
|
|
(4 |
) |
|
|
|
|
- |
|
|
|
|
90 |
|
|
|
|
(65 |
) |
|
|
|
|
- |
|
|
|
|
(29 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
Balance, December 31, 2007 |
|
|
|
126,366 |
|
|
|
|
2,430,873 |
|
|
|
|
- |
|
|
|
|
78,979 |
|
|
|
|
361,826 |
|
|
|
|
- |
|
|
|
|
1,742,892 |
|
|
|
|
(48,101 |
) |
|
|
|
|
295,277 |
|
Adjustment to reflect change in accounting for split dollar life insurance (ASC 715-60) |
|
|
|
- |
|
|
|
|
(8,530 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(8,530 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Adjustment to reflect change in accounting for fair value of interest rate lock commitments (ASC 820) |
|
|
|
- |
|
|
|
|
(12,502 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(12,502 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
Beginning balance, as adjusted |
|
|
|
126,366 |
|
|
|
|
2,409,841 |
|
|
|
|
- |
|
|
|
|
78,979 |
|
|
|
|
361,826 |
|
|
|
|
- |
|
|
|
|
1,721,860 |
|
|
|
|
(48,101 |
) |
|
|
|
|
295,277 |
|
Net income/(loss) |
|
|
|
- |
|
|
|
|
(177,971 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(191,987 |
) |
|
|
|
|
- |
|
|
|
|
14,016 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized fair value adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
- |
|
|
|
|
(6 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(6 |
) |
|
|
|
|
- |
|
Securities available for sale |
|
|
|
- |
|
|
|
|
21,852 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
21,852 |
|
|
|
|
- |
|
Pension and postretirement plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost arising during period |
|
|
|
- |
|
|
|
|
(37 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(37 |
) |
|
|
|
|
- |
|
Net actuarial gain/(loss) arising during period |
|
|
|
- |
|
|
|
|
(127,960 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(127,960 |
) |
|
|
|
|
- |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost |
|
|
|
- |
|
|
|
|
2,421 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
2,421 |
|
|
|
|
- |
|
|
|
|
Comprehensive income/(loss) |
|
|
|
- |
|
|
|
|
(281,701 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(191,987 |
) |
|
|
|
|
(103,730 |
) |
|
|
|
|
14,016 |
|
|
|
|
72
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
Common Shares |
|
Total |
|
Preferred Stock Capital Surplus |
|
Common Stock |
|
Capital Surplus |
|
Capital Surplus Warrants |
|
Undivided Profits |
|
Accumulated Other Comprehensive Income/(Loss) |
|
Noncontrolling Interest |
|
Preferred stock and common stock warrant issuance - CPP |
|
|
|
- |
|
|
|
|
866,540 |
|
|
|
|
782,680 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
83,860 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
REIT preferred stock redemption |
|
|
|
- |
|
|
|
|
(112 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(112 |
) |
|
Cash dividends declared ($.35/share) (a) |
|
|
|
- |
|
|
|
|
(64,401 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(64,401 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Stock dividends declared |
|
|
|
9,689 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
6,056 |
|
|
|
|
71,525 |
|
|
|
|
- |
|
|
|
|
(77,581 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock issuance (69 million shares issued at $10 per share net of offering costs) |
|
|
|
69,000 |
|
|
|
|
659,656 |
|
|
|
|
- |
|
|
|
|
43,125 |
|
|
|
|
616,531 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock repurchased |
|
|
|
- |
|
|
|
|
(306 |
) |
|
|
|
|
- |
|
|
|
|
(19 |
) |
|
|
|
|
(287 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock issued for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock - equity awards |
|
|
|
258 |
|
|
|
|
(1,956 |
) |
|
|
|
|
- |
|
|
|
|
128 |
|
|
|
|
(2,084 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Tax benefit from incentive plans |
|
|
|
- |
|
|
|
|
(7,910 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(7,910 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Stock-based compensation expense |
|
|
|
- |
|
|
|
|
9,034 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
9,034 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Dividends paid to noncontrolling interest of subsidiary preferred stock |
|
|
|
- |
|
|
|
|
(14,016 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(14,016 |
) |
|
Other |
|
|
|
(30 |
) |
|
|
|
|
(37 |
) |
|
|
|
|
- |
|
|
|
|
33 |
|
|
|
|
(33 |
) |
|
|
|
|
- |
|
|
|
|
(37 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
Balance, December 31, 2008 |
|
|
|
205,283 |
|
|
|
|
3,574,632 |
|
|
|
|
782,680 |
|
|
|
|
128,302 |
|
|
|
|
1,048,602 |
|
|
|
|
83,860 |
|
|
|
|
1,387,854 |
|
|
|
|
(151,831 |
) |
|
|
|
|
295,165 |
|
Net income/(loss) |
|
|
|
- |
|
|
|
|
(258,435 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(269,837 |
) |
|
|
|
|
- |
|
|
|
|
11,402 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized fair value adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
- |
|
|
|
|
22,614 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
22,614 |
|
|
|
|
- |
|
Pension and postretirement plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost arising during period |
|
|
|
- |
|
|
|
|
10,829 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
10,829 |
|
|
|
|
- |
|
Net actuarial gain/(loss) arising during period (b) |
|
|
|
- |
|
|
|
|
3,541 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
3,541 |
|
|
|
|
- |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost |
|
|
|
- |
|
|
|
|
638 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
638 |
|
|
|
|
- |
|
|
|
|
Comprehensive income/(loss) |
|
|
|
- |
|
|
|
|
(220,813 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(269,837 |
) |
|
|
|
|
37,622 |
|
|
|
|
11,402 |
|
|
|
|
Preferred stock - (CPP) accretion |
|
|
|
- |
|
|
|
|
16,005 |
|
|
|
|
16,005 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Preferred stock - (CPP) dividends |
|
|
|
- |
|
|
|
|
(59,543 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(59,543 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Stock dividends declared |
|
|
|
15,532 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
9,708 |
|
|
|
|
157,398 |
|
|
|
|
- |
|
|
|
|
(167,106 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock repurchased |
|
|
|
- |
|
|
|
|
(392 |
) |
|
|
|
|
- |
|
|
|
|
(22 |
) |
|
|
|
|
(370 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock issued for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock - equity awards |
|
|
|
1,200 |
|
|
|
|
2,015 |
|
|
|
|
- |
|
|
|
|
750 |
|
|
|
|
1,265 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Tax benefit from incentive plans |
|
|
|
- |
|
|
|
|
(5,701 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(5,701 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Stock-based compensation expense |
|
|
|
- |
|
|
|
|
7,455 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
7,455 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Dividends paid to noncontrolling interest of subsidiary preferred stock |
|
|
|
- |
|
|
|
|
(11,402 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(11,402 |
) |
|
Other changes in equity |
|
|
|
(35 |
) |
|
|
|
|
212 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
212 |
|
|
|
|
- |
|
|
|
|
- |
|
|
Balance, December 31, 2009 |
|
|
|
221,980 |
|
|
|
$ |
|
3,302,468 |
|
|
|
$ |
|
798,685 |
|
|
|
$ |
|
138,738 |
|
|
|
$ |
|
1,208,649 |
|
|
|
$ |
|
83,860 |
|
|
|
$ |
|
891,580 |
|
|
|
|
($114,209 |
) |
|
|
|
$ |
|
295,165 |
|
|
See accompanying notes to consolidated financial statements. |
Certain previously reported amounts have been reclassified to agree with current presentation. |
|
(a) |
|
|
|
Per share data restated to reflect the effect of stock dividends declared through December 31, 2009. |
|
(b) |
|
|
|
Includes a positive, after-tax effect of $18.3 million due to a curtailment. See Note 19 - Savings, Pension, and Other Employee Benefits.
|
73
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Year Ended December 31 |
|
2009 |
|
2008 |
|
2007 |
|
Operating |
|
Net loss |
|
|
$ |
|
(258,435 |
) |
|
|
|
$ |
|
(177,971 |
) |
|
|
|
$ |
|
(151,311 |
) |
|
Activities |
|
Adjustments to reconcile net loss to net cash provided/(used) by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
|
880,000 |
|
|
|
|
1,080,000 |
|
|
|
|
272,765 |
|
|
|
Benefit for deferred income tax |
|
|
|
(173,900 |
) |
|
|
|
|
(411,429 |
) |
|
|
|
|
(215,294 |
) |
|
|
|
Depreciation and amortization of premises and equipment |
|
|
|
32,538 |
|
|
|
|
41,278 |
|
|
|
|
57,125 |
|
|
|
Amortization of intangible assets |
|
|
|
6,017 |
|
|
|
|
8,229 |
|
|
|
|
10,959 |
|
|
|
Net other amortization and accretion |
|
|
|
43,176 |
|
|
|
|
47,941 |
|
|
|
|
63,550 |
|
|
|
Decrease/(increase) in derivatives, net |
|
|
|
186,578 |
|
|
|
|
(110,044 |
) |
|
|
|
|
62,278 |
|
|
|
Market value adjustment on mortgage servicing rights |
|
|
|
(67,817 |
) |
|
|
|
|
422,561 |
|
|
|
|
238,236 |
|
|
|
Provision for foreclosure and repurchase losses |
|
|
|
126,460 |
|
|
|
|
11,531 |
|
|
|
|
8,467 |
|
|
|
Fair value adjustment for real estate losses |
|
|
|
34,924 |
|
|
|
|
4,393 |
|
|
|
|
2,100 |
|
|
|
Goodwill impairment |
|
|
|
16,591 |
|
|
|
|
- |
|
|
|
|
84,084 |
|
|
|
Impairment of other intangible assets |
|
|
|
341 |
|
|
|
|
4,034 |
|
|
|
|
990 |
|
|
|
(Gains)/losses on divestitures |
|
|
|
9,183 |
|
|
|
|
19,020 |
|
|
|
|
(15,695 |
) |
|
|
|
Stock-based compensation expense |
|
|
|
7,455 |
|
|
|
|
9,034 |
|
|
|
|
11,338 |
|
|
|
Excess tax benefit/(provision) from stock-based compensation arrangements |
|
|
|
5,701 |
|
|
|
|
7,910 |
|
|
|
|
(6,258 |
) |
|
|
|
Equity securities (gains)/losses, net |
|
|
|
1,178 |
|
|
|
|
(65,349 |
) |
|
|
|
|
7,475 |
|
|
|
Debt securities gains, net |
|
|
|
- |
|
|
|
|
(761 |
) |
|
|
|
|
(6,292 |
) |
|
|
|
Gains on repurchases of debt |
|
|
|
(16,412 |
) |
|
|
|
|
(33,845 |
) |
|
|
|
|
- |
|
|
|
Net losses on disposal of fixed assets |
|
|
|
8,749 |
|
|
|
|
3,218 |
|
|
|
|
1,753 |
|
|
|
Net (increase)/decrease in: |
|
|
|
|
|
|
|
|
Trading securities |
|
|
|
181,872 |
|
|
|
|
782,470 |
|
|
|
|
461,982 |
|
|
|
Loans held for sale |
|
|
|
114,153 |
|
|
|
|
2,926,558 |
|
|
|
|
(588,135 |
) |
|
|
|
Capital markets receivables |
|
|
|
844,528 |
|
|
|
|
(654,513 |
) |
|
|
|
|
207,863 |
|
|
|
Interest receivable |
|
|
|
15,061 |
|
|
|
|
46,314 |
|
|
|
|
18,678 |
|
|
|
MSR due to sale |
|
|
|
87,274 |
|
|
|
|
256,323 |
|
|
|
|
90,074 |
|
|
|
Other assets |
|
|
|
(230,811 |
) |
|
|
|
|
(224,416 |
) |
|
|
|
|
(189,834 |
) |
|
|
|
Net increase/(decrease) in: |
|
|
|
|
|
|
|
|
Capital markets payables |
|
|
|
(822,453 |
) |
|
|
|
|
529,070 |
|
|
|
|
(213,131 |
) |
|
|
|
Interest payable |
|
|
|
(31,144 |
) |
|
|
|
|
(51,765 |
) |
|
|
|
|
(8,739 |
) |
|
|
|
Other liabilities |
|
|
|
(150,420 |
) |
|
|
|
|
1,954 |
|
|
|
|
160,877 |
|
|
|
Trading liabilities |
|
|
|
(66,115 |
) |
|
|
|
|
(196,642 |
) |
|
|
|
|
(233,813 |
) |
|
|
|
|
Total adjustments |
|
|
|
1,042,707 |
|
|
|
|
4,453,074 |
|
|
|
|
283,403 |
|
|
|
|
Net cash provided by operating activities |
|
|
|
784,272 |
|
|
|
|
4,275,103 |
|
|
|
|
132,092 |
|
|
Investing |
|
Held to maturity securities: |
|
|
|
|
|
|
Activities |
|
Maturities |
|
|
|
- |
|
|
|
|
240 |
|
|
|
|
29 |
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
Sales |
|
|
|
48,743 |
|
|
|
|
157,984 |
|
|
|
|
653,627 |
|
|
|
Maturities |
|
|
|
710,652 |
|
|
|
|
592,776 |
|
|
|
|
847,174 |
|
|
|
Purchases |
|
|
|
(287,464 |
) |
|
|
|
|
(729,984 |
) |
|
|
|
|
(573,426 |
) |
|
|
|
Premises and equipment: |
|
|
|
|
|
|
|
|
Purchases |
|
|
|
(21,180 |
) |
|
|
|
|
(23,666 |
) |
|
|
|
|
(33,539 |
) |
|
|
|
Net (increase)/decrease in: |
|
|
|
|
|
|
|
|
Securitization retained interests classified as trading securities |
|
|
|
63,994 |
|
|
|
|
(47,336 |
) |
|
|
|
|
- |
|
|
|
Loans |
|
|
|
2,259,477 |
|
|
|
|
418,985 |
|
|
|
|
(754,806 |
) |
|
|
|
Interest-bearing cash |
|
|
|
(331,508 |
) |
|
|
|
|
(168,370 |
) |
|
|
|
|
(21,381 |
) |
|
|
|
Cash (payments)/receipts related to divestitures |
|
|
|
803 |
|
|
|
|
(40,608 |
) |
|
|
|
|
23,318 |
|
|
|
|
Net cash provided/(used) by investing activities |
|
|
|
2,443,517 |
|
|
|
|
160,021 |
|
|
|
|
140,996 |
|
|
Financing |
|
Common stock: |
|
|
|
|
|
|
Activities |
|
Exercise of stock options |
|
|
|
3 |
|
|
|
|
511 |
|
|
|
|
34,542 |
|
|
|
Cash dividends paid |
|
|
|
- |
|
|
|
|
(120,575 |
) |
|
|
|
|
(225,011 |
) |
|
|
|
Repurchase of shares |
|
|
|
(392 |
) |
|
|
|
|
(303 |
) |
|
|
|
|
(1,104 |
) |
|
|
|
Issuance of common shares |
|
|
|
- |
|
|
|
|
659,656 |
|
|
|
|
- |
|
|
|
Issuance of preferred equity and common stock warrant - CPP |
|
|
|
- |
|
|
|
|
866,540 |
|
|
|
|
- |
|
|
|
Excess tax benefit/(provision) from stock-based compensation arrangements |
|
|
|
(5,701 |
) |
|
|
|
|
(7,910 |
) |
|
|
|
|
6,258 |
|
|
|
Cash dividends paid - preferred stock - CPP |
|
|
|
(43,447 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
Cash dividends paid - preferred stock - noncontrolling interest |
|
|
|
(12,741 |
) |
|
|
|
|
(14,459 |
) |
|
|
|
|
(18,890 |
) |
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
Issuance |
|
|
|
- |
|
|
|
|
25,002 |
|
|
|
|
1,230,171 |
|
|
|
Payments/maturities |
|
|
|
(1,600,613 |
) |
|
|
|
|
(1,969,207 |
) |
|
|
|
|
(292,288 |
) |
|
|
|
Cash paid for repurchase of debt |
|
|
|
(201,858 |
) |
|
|
|
|
(244,928 |
) |
|
|
|
|
- |
|
|
|
Issuance of preferred stock of subsidiary |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
8 |
|
|
|
Repurchase of preferred stock of subsidiary |
|
|
|
- |
|
|
|
|
(112 |
) |
|
|
|
|
(1 |
) |
|
|
|
Net increase/(decrease) in: |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
625,432 |
|
|
|
|
(2,321,483 |
) |
|
|
|
|
(2,956,271 |
) |
|
|
|
Short-term borrowings |
|
|
|
(2,394,657 |
) |
|
|
|
|
(2,242,791 |
) |
|
|
|
|
2,063,121 |
|
|
|
|
Net cash used by financing activities |
|
|
|
(3,633,974 |
) |
|
|
|
|
(5,370,059 |
) |
|
|
|
|
(159,465 |
) |
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
|
(406,185 |
) |
|
|
|
|
(934,935 |
) |
|
|
|
|
113,623 |
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
1,324,780 |
|
|
|
|
2,259,715 |
|
|
|
|
2,146,092 |
|
|
|
|
Cash and cash equivalents at end of period |
|
|
$ |
|
918,595 |
|
|
|
$ |
|
1,324,780 |
|
|
|
$ |
|
2,259,715 |
|
|
|
|
Total interest paid |
|
|
|
246,832 |
|
|
|
|
761,130 |
|
|
|
|
1,374,583 |
|
|
|
Total income taxes paid |
|
|
$ |
|
109,242 |
|
|
|
$ |
|
336,681 |
|
|
|
$ |
|
13,052 |
|
|
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.
74
FIRST HORIZON NATIONAL CORPORATION
Notes to Consolidated Financial Statements
Note 1 q Summary of Significant Accounting Policies
Basis of Accounting. The consolidated financial statements of First Horizon National Corporation (FHN), including its subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates.
This preparation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on information available as of the date of the financial statements and could differ from actual results.
Subsequent Events. Events occurring after the date of the Consolidated Statements of Condition but before the issuance of the financial statements included in this filing have been evaluated through the time of this filing.
Principles of Consolidation and Basis of Presentation. The consolidated financial statements include the accounts of FHN and other entities in which it has a controlling financial interest. Variable Interest Entities (VIE) for which FHN or a subsidiary has been determined to be the primary beneficiary are also
consolidated. Affiliates for which FHN is not considered the primary beneficiary and that FHN does not have a controlling financial interest in are accounted for by the equity method. These investments are included in other assets, and FHNs proportionate share of income or loss is included in noninterest income.
All significant intercompany transactions and balances have been eliminated. For purposes of comparability, certain prior period amounts have been reclassified to conform to current year presentation. Business combinations accounted for as purchases are included in the financial statements from the respective
dates of acquisition.
Revenue Recognition. FHN derives a significant portion of its revenues from fee-based services. Noninterest income from transaction-based fees is generally recognized when the transactions are completed. Noninterest income from service-based fees is generally recognized over the period in which FHN provides the
service.
Deposit Transactions and Cash Management. Deposit transactions include services related to retail and commercial deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (Automated Clearing House and Electronic Data
Interchange), account reconciliation services, cash vault services, lockbox processing, and information reporting to large corporate clients.
Insurance Commissions. Insurance commissions are derived from the sale of insurance products, including acting as an independent agent to provide commercial and personal property and casualty, life, long-term care, and disability insurance.
Trust Services and Investment Management. Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services.
Brokerage Management Fees and Commissions. Brokerage management fees and commissions include fees for portfolio management, trade commissions, and annuity and mutual fund sales.
Statements of Cash Flows. For purposes of these statements, cash and due from banks, federal funds sold, and securities purchased under agreements to resell are considered cash and cash equivalents. Federal funds are usually sold for one-day periods, and securities purchased under agreements to resell are
short-term, highly liquid investments.
Trading Activities. Securities purchased in connection with underwriting or dealer activities (long positions) are carried at market value as trading securities. Gains and losses, both realized and unrealized, on these securities are reflected in capital markets noninterest income. Trading liabilities include securities that
FHN has sold to other parties but does not own (short positions). FHN is obligated to purchase securities at a future date to cover the short positions. Assets and liabilities for unsettled trades are recorded on the Consolidated Statements of Condition as Capital markets receivables or Capital markets payables.
Retained interests, in the form of excess interest, interest-only and principal-only strips, and subordinated securities from sales and securitizations of first lien
75
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
mortgages are recognized at fair value as trading securities with gains and losses, both realized and unrealized, recognized in mortgage banking income. Retained interests, in the form of certificated residual interests from the securitization of second lien mortgages and home equity lines of credit (HELOC) are
recognized at fair value as trading securities with gains and losses, both realized and unrealized, recognized in other income on the Consolidated Statements of Income.
Investment Securities. Investment securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the degree of loss, the length of time the fair value has been below cost, the expectation for that
securitys performance, the creditworthiness of the issuer and FHNs intent and ability to hold the security. Securities that may be sold prior to maturity and equity securities are classified as securities available for sale and are carried at fair value. The unrealized gains and losses on securities available for sale,
including debt securities for which no credit impairment exists, are excluded from earnings and are reported, net of tax, as a component of other comprehensive income within shareholders equity. Venture capital investments are classified as securities available for sale and are carried at fair value. Following
adoption of the provisions of the FASB Codification update to FASB Accounting Standards Codification (ASC) 820 on January 1, 2008, unrealized gains and losses on such securities are recognized prospectively in noninterest income. Prior to FHNs adoption of the provisions of the Codification update to ASC
820, venture capital investments were initially valued at cost based on their unmarketable nature. Subsequently, these investments were adjusted to reflect changes in valuation as a result of public offerings or other-than-temporary declines in value.
Upon adoption of the provisions of the FASB Codification update to ASC 320-10-35 for the quarter ended March 31, 2009, the intent and ability to hold to recovery indicator was replaced for debt securities with a requirement that an entitys management assess whether it intends to sell a security or if it is more-
likely-than-not that it will be required to sell the security prior to recovery for the debt security when determining other-than-temporary impairment. Realized gains and losses for investment securities are determined by the specific identification method and reported in noninterest income. Declines in value judged to
be other-than-temporary based on FHNs analysis of the facts and circumstances related to an individual investment, including securities that FHN has the intent to sell, are also determined by the specific identification method, and reported in noninterest income. After adoption of the amendments to ASC 320-10-
35, for impaired debt securities that FHN does not intend to sell and will not be required to sell prior to recovery but for which credit losses exist, the other-than-temporary impairment recognized has been separated between the total impairment related to credit losses which is reported in noninterest income, and
the impairment related to all other factors which is excluded from earnings and reported, net of tax, as a component of other comprehensive income within shareholders equity. Currently, FHN does not have other-than-temporarily impaired debt securities for which credit losses exist.
Securities Purchased under Resale Agreements and Securities Sold under Repurchase Agreements. FHN enters into short-term purchases of securities under agreements to resell which are accounted for as collateralized financings except where FHN does not have an agreement to sell the same or substantially the
same securities before maturity at a fixed or determinable price. Securities delivered under these transactions are delivered to either the dealer custody account at the Federal Reserve Bank or to the applicable counterparty. Collateral is valued daily and FHN may require counterparties to deposit additional collateral
or FHN may return collateral pledged when appropriate to maintain full collateralization for these transactions.
Securities sold under agreements to repurchase are offered to cash management customers as an automated, collateralized investment account. Securities sold are also used by the retail/commercial bank to obtain favorable borrowing rates on its purchased funds. As of December 31, 2009 and 2008, FHN had
pledged $1.5 billion and $1.2 billion, respectively, of available for sale securities as collateral for these arrangements.
Loans Held for Sale and Securitization and Residual Interests. Prior to fourth quarter 2008, FHN originated first lien mortgage loans (the warehouse) for the purpose of selling them in the secondary market, through sales to agencies for securitization, proprietary securitizations, and to a lesser extent through other
loan sales. In addition, FHN evaluated its liquidity position in conjunction with determining its ability and intent to hold loans for the foreseeable future and sold certain second lien mortgages and HELOC it produced in the secondary market through securitizations and loan sales through third quarter 2007. Loan
securitizations involve the transfer of the
76
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
loans to qualifying special purposes entities (QSPE) that are not subject to consolidation in accordance with ASC 860, Transfers and Servicing. Generally, FHN retained the right to service the transferred loans. With FHNs current focus on origination of mortgages within its regional banking footprint and the sale
of its national mortgage origination offices in third quarter 2008, loan sale and securitization activity has significantly decreased. Generally, FHN no longer retains financial interests in loans it transfers to third parties.
Loans originated or purchased for resale, together with mortgage loans previously sold which may be unilaterally called by FHN, are included in loans held for sale in the Consolidated Statements of Condition. Effective January 1, 2008, upon adoption of the provisions of the FASB Codification update to ASC 825,
Financial Instruments, FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes. Such loans are carried at fair value, with changes in the fair value of these loans recognized in the mortgage banking noninterest income section of the Consolidated
Statements of Income. For mortgage loans originated for sale for which the fair value option is elected, loan origination fees are recorded by FHN when earned and related direct loan origination costs are recognized when incurred. Interests retained from the sale or securitization of such loans are included as a
component of trading securities on the Consolidated Statements of Condition, with related cash receipts and payments classified prospectively in investing activities on the Consolidated Statements of Cash Flows based on the purpose for which such financial assets were retained. See Note 22 Fair Value of Assets
and Liabilities for additional information.
After adoption of the provisions of the Codification update to ASC 825, FHN continued to account for all mortgage loans held for sale which were originated prior to 2008 and for mortgage loans held for sale for which fair value accounting was not elected at the lower of cost or market value. For such loans, net
origination fees and costs were deferred and included in the basis of the loans in calculating gains and losses upon sale. The value accreted during the time that the loan was a locked commitment was also included in the basis of first lien mortgage loans. The cost basis of loans qualifying for fair value hedge
accounting under ASC 815, Derivatives and Hedging, was adjusted to reflect changes in fair value. Gains and losses realized from the sale of these assets were included in noninterest income. Interests retained from the sale of such loans are included as a component of trading securities on the Consolidated
Statements of Condition.
In conjunction with the adoption of the provisions of the FASB Codification update to ASC 820-10 for the quarter ended March 31, 2009, FHN revised its methodology for determining the fair value of certain loans within its mortgage warehouse. FHN now determines the fair value of the applicable loans using a
discounted cash flow model using observable inputs, including current mortgage rates for similar products, with adjustments for differences in loan characteristics reflected in the models discount rates. This change in methodology had a minimal effect on the valuation of the applicable loans. Previously, fair values
of these loans were determined through reference to recent security trade prices for similar products, published third party bids, or observable whole loan sale prices with adjustments for differences in loan characteristics.
Mortgage loans insured by the Federal Housing Administration (FHA) and mortgage loans guaranteed by the Veterans Administration (VA) are generally securitized through the Government National Mortgage Association (GNMA). Generally, conforming conventional loans are securitized through government-
sponsored enterprises (GSE) such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). In addition, FHN has completed proprietary securitizations of nonconforming first lien and second lien mortgages and HELOC, which do not conform to the
requirements for sale or securitization through government agencies or GSE. Most of these securitizations are accounted for as sales; those that do not qualify for sale treatment are accounted for as financing arrangements.
Interests retained from loan sales, including agency securitizations, include MSR and excess interest. Interests retained from proprietary securitizations include MSR and various financial assets. MSR are initially valued at fair value, and the remaining retained interests are initially valued by allocating the remaining
cost basis of the loan between the security or loan sold and the remaining retained interests based on their relative fair values at the time of securitization or sale. All retained interests, including MSR, are carried at fair value.
Financial assets retained in a proprietary or agency securitization may include certificated residual interests, excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual
77
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
interests represent rights to receive earnings to the extent of excess income generated by the underlying loans. Excess interest represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are principal cash flow tranches, and interest-only strips are interest
cash flow tranches. Subordinated bonds are bonds with junior priority. All financial assets retained from a securitization are recognized on the Consolidated Statements of Condition in trading securities at fair value with realized and unrealized gains and losses included in current earnings as a component of
noninterest income on the Consolidated Statements of Income.
The fair values of the certificated residual interests and the excess interest are determined using market prices from closely comparable assets such as MSR that are tested against prices determined using a valuation model that calculates the present value of estimated future cash flows. The fair value of these
retained interests typically changes based on changes in the discount rate and differences between modeled prepayment speeds and credit losses and actual experience. In some instances, FHN retains interests in the loans it securitized by retaining certificated principal-only strips or subordinated bonds. FHN uses
observable inputs such as trades of similar instruments, yield curves, credit spreads, and consensus prepayment speeds to determine the fair value of principal-only strips. The fair value of subordinated bonds is determined using the best available market information, which may include trades of comparable
securities, independently provided spreads to other marketable securities, and published market research. Where no market information is available, the company utilizes an internal valuation model. As of December 31, 2009, and December 31, 2008, no market information was available, and the subordinated
bonds were valued using an internal model which includes assumptions about timing, frequency and severity of loss, prepayment speeds of the underlying collateral, and the yield that a market participant would require.
FHN recognizes all its classes of MSR at fair value. Classes of MSR are determined in accordance with FHNs risk management practices and market inputs used in determining the fair value of the servicing asset. Since sales of MSR tend to occur in private transactions and the precise terms and conditions of the
sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSR. As such, FHN relies primarily on a discounted cash flow model to estimate the fair value of its MSR. This model calculates estimated fair value of the MSR using predominant risk characteristics of MSR
such as interest rates, type of product (fixed vs. variable), age (new, seasoned, or moderate), agency type and other factors. FHN uses assumptions in the model that it believes are comparable to those used by brokers and other service providers. FHN also periodically compares its estimates of fair value and
assumptions with brokers, service providers, and recent market activity and against its own experience.
Loans. Loans are stated at principal amounts outstanding, net of unearned income. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs as well as premiums and discounts are amortized as level yield
adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are generally deferred and amortized on a straight-line basis over the commitment period. Impaired loans are generally carried on a nonaccrual status. Loans are
ordinarily placed on nonaccrual status when, in managements opinion, the collection of principal or interest is unlikely. Accrued but uncollected interest is reversed and charged against interest income when the loan is placed on nonaccrual status. On retail loans, accrued but uncollected interest is reversed when
the loan is fully or partially charged off. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on nonaccrual and impaired loans are normally applied to principal.
Once all principal has been received, additional interest payments are recognized on a cash basis as interest income.
Individually impaired loans are measured using either a discounted cash flow methodology or the estimated fair value of the underlying collateral less costs to sell, if the loan is considered collateral-dependent. In accordance with accounting standards, the discounted cash flow analysis utilizes the loans effective
interest rate for discounting expected cash flow amounts. For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral
values have declined further. Estimated costs
78
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
to sell are based on current amounts of disposal costs for similar assets. Generally, FHN does not carry loan loss reserves for collateral dependent individually impaired loans.
Allowance for Loan Losses. The allowance for loan losses is maintained at a level that management determines is sufficient to absorb estimated probable incurred losses in the loan portfolio. Managements evaluation process to determine the adequacy of the allowance utilizes analytical models based on loss
experience subject to adjustment to reflect current events, trends, and conditions (including economic considerations and trends). The actual amounts realized could differ in the near future from the amounts assumed in arriving at the allowance for loan losses reported in the financial statements.
All losses of principal are charged to the allowance for loan losses in the period in which the loan is deemed to be uncollectible. Additions are made to the allowance through periodic provisions charged to current operations and recovery of principal on loans previously charged off.
Premises and Equipment. Premises and equipment are carried at cost less accumulated depreciation and amortization and include additions that materially extend the useful lives of existing premises and equipment. All other maintenance and repair expenditures are expensed as incurred. Gains and losses on
dispositions are reflected in noninterest income and expense.
Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets and are recorded as noninterest expense. Leasehold improvements are amortized over the lesser of the lease periods or the estimated useful lives using the straight-line method. Useful lives utilized
in determining depreciation for furniture, fixtures and equipment and buildings are three to fifteen and seven to forty-five years, respectively.
Real Estate Acquired by Foreclosure. Properties acquired by foreclosure in compliance with HUD servicing guidelines are included in Real estate acquired by foreclosure and are carried at the estimated amount of the underlying government insurance or guarantee. On December 31, 2009, FHN had $11.5 million
in these foreclosed properties. All other real estate acquired by foreclosure consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Losses arising at foreclosure
are charged to the appropriate reserve.
Required developmental costs associated with foreclosed property under construction are capitalized and included in determining the estimated net realizable value of the property, which is reviewed periodically, and any write-downs are charged against current earnings.
Intangible Assets. Intangible assets consist of Other intangible assets and Goodwill. The Other intangible assets represents identified intangible assets, including customer lists, acquired contracts, covenants not to compete and premium on purchased deposits, which are amortized over their estimated useful
lives, except for those assets related to deposit bases that are primarily amortized over 10 years. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of amortizing intangibles should be revised. Goodwill represents the excess of cost over net
assets of acquired subsidiaries less identifiable intangible assets. On an annual basis, FHN tests goodwill for impairment. For the year ended December 31, 2007, as a result of impairment assessments completed in relation to two full-service First Horizon Bank branches sold as part of FHNs restructuring,
repositioning, and efficiency initiatives, a goodwill impairment of $13.0 million and impairments of other intangible assets of $.9 million were recognized. Additionally, in fourth quarter 2007, FHN incurred a noncash impairment charge of $71.1 million for the writedown of goodwill associated with the Mortgage
Banking business segment. While impairment of Goodwill recognized was immaterial to FHN for the year ended December 31, 2008, impairments of other intangible assets of $4.0 million were recognized during 2008 in relation to FHNs divestiture of certain mortgage banking operations and from the change in
FHNs national banking strategy. For the year ended December 31, 2009, goodwill impairments of $16.6 million and an impairment of other intangible assets of $.2 million were recognized as a result of impairment assessments completed in relation to an agreement to sell FTN Equity Capital Markets (FTN ECM)
and in relation to the disposal of the First Horizon Insurance business in the Atlanta area. See Note 26 Restructuring,
79
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
Repositioning, and Efficiency Initiatives for additional information regarding the impairments of other intangible assets during 2008 and the impairments of goodwill and other intangible assets during 2007 and 2009. See Note 7 Intangible Assets for additional information regarding the goodwill impairment charge
recognized by the Mortgage Banking business segment in 2007.
Derivative Financial Instruments. FHN accounts for derivative financial instruments in accordance with ASC 815 which requires recognition of all derivative instruments on the balance sheet as either an asset or liability measured at fair value through adjustments to either accumulated other comprehensive income
within shareholders equity or current earnings. Fair value is defined as the price that would be received to sell a derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on the transaction date. Fair value is determined using available market information and
appropriate valuation methodologies.
FHN prepares written hedge documentation, identifying the risk management objective and designating the derivative instrument as a fair value hedge, cash flow hedge or free-standing derivative instrument entered into as an economic hedge or to meet customers needs. All transactions designated as ASC 815
hedges must be assessed at inception and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair value or cash flows of the hedged item. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or
liability are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any
ineffective portion of a cash flow hedge is recognized currently in earnings. For free-standing derivative instruments, changes in fair values are recognized currently in earnings. See Note 25 Derivatives and Off-Balance Sheet Arrangements for additional information.
Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.
Advertising and Public Relations. Advertising and public relations costs are generally expensed as incurred.
Income Taxes. FHN accounts for income taxes using the liability method pursuant to ASC 740, Income Taxes. Under this method, FHNs deferred tax assets and liabilities are determined by applying the applicable federal and state income tax rates to its cumulative temporary differences. These temporary
differences represent differences between financial statement carrying amounts and the corresponding tax bases of certain assets and liabilities. Deferred taxes are provided as a result of such temporary differences.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files
consolidated, combined, or separate returns. With few exceptions, FHN is no longer subject to U.S. federal or state and local tax examinations by tax authorities for years before 2006. The Internal Revenue Service (IRS) is currently examining tax years 2006-2008. All proposed adjustments with respect to
examinations of federal returns filed for 2005 and prior years have been settled.
FHN adopted the provisions of a Codification update to ASC 740 on January 1, 2007. As a result of the implementation of the provisions of the Codification update, FHN recognized a $.9 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007
balance of undivided profits. The total balance of unrecognized tax benefits at December 31, 2009 and December 31, 2008, respectively, were $30.0 million and $31.1 million. FHN does not expect that unrecognized tax benefits will significantly increase or decrease within the next twelve months. FHN recognizes
accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. FHN had approximately $7.6 million and $6.0 million accrued for the payment of interest at December 31, 2009 and December 31, 2008, respectively.
Earnings per Share. Earnings per share is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share in net income periods is computed by dividing net income available to common
shareholders by the
80
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
weighted average number of common shares adjusted to include the number of additional common shares that would have been outstanding if the potential dilutive common shares resulting from options granted under FHNs stock option plans and deferred compensation arrangements had been issued. FHN
utilizes the treasury stock method in this calculation. Diluted earnings per share does not reflect an adjustment for potentially dilutive shares in net loss periods. As a result of the stock dividends declared in 2008 and 2009, weighted average basic and diluted shares were restated to reflect the effect of the stock
dividends.
Equity Compensation. FHN accounts for its employee stock-based compensation plans using the grant date fair value of an award to determine the expense to be recognized over the life of the award. For awards with service vesting criteria, expense is recognized using the straight-line method over the requisite
service period (generally the vesting period) and is adjusted for anticipated forfeitures. For awards vesting based on a performance measure, anticipated performance is projected to determine the number of awards expected to vest, and the corresponding aggregate expense is adjusted to reflect the elapsed portion
of the performance period. The fair value of equity awards with cash payout requirements, as well as awards for which fair value cannot be estimated at grant date, is remeasured each reporting period through vesting date. Awards are amortized using the nonsubstantive vesting methodology which requires that
expense associated with awards having only service vesting criteria that continue vesting after retirement be recognized over a period ending no later than an employees retirement eligibility date.
Accounting Changes. Effective December 31, 2009, FHN adopted the provisions of the FASB Codification Update to ASC 715 which provides detailed disclosure requirements to enhance the disclosures about an employers postretirement benefit plan assets currently required by ASC 715-20-50. Upon adoption of
the amendments to ASC 715, FHN revised its disclosures accordingly.
Effective December 31, 2009, FHN adopted the provisions of FASB Accounting Standards Update 2010-02, Accounting and Reporting for Decreases in Ownership of a Subsidiarya Scope Clarification (ASU 2010-02). ASU 2010-02 clarifies the scope of the decrease in ownership guidance in ASC 810-10 and
expands the disclosures required upon deconsolidation of a subsidiary under ASC 810-10-50-1B. The adoption of the Codification update to ASC 810-10 had no effect on FHNs statement of condition or results of operations.
Effective December 31, 2009, FHN adopted the provisions of FASB Accounting Standards Update 2009-05, Measuring Liabilities at Fair Value (ASU 2009-05). ASU 2009-05 updates ASC 820 to clarify that a quoted price for the identical liability, when traded as an asset in an active market, is a Level 1
measurement for that liability when no adjustment to the quoted price is required. ASU 2009-05 further amends ASC 820 to provide that if a quoted price for an identical liability does not exist in an active market, the fair value of the liability should be measured using an approach that maximizes the use of
relevant observable inputs and minimizes the use of unobservable inputs. Under the updated provisions of ASC 820, for such liabilities fair value will be measured using either a valuation technique that uses the quoted price of the identical liability when traded as an asset, a valuation technique that uses the
quoted price for similar liabilities or similar liabilities when traded as an asset, or another valuation technique that is consistent with the principles of ASC 820. The adoption of the Codification update to ASC 820 had no material effect on FHNs statement of condition or results of operations.
Effective September 30, 2009, FHN adopted the provisions of FASB Accounting Standards Update 2009-01 which creates ASC 105, Generally Accepted Accounting Principles. ASC 105 establishes the FASB Accounting Standards Codification (the Codification) as the single source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, other than guidance issued by the SEC. Under ASC 105, all guidance contained in the FASB Accounting Standards Codification carries an equal level of authority, with
ASC 105 superseding all non-SEC accounting and reporting standards which existed as of its effective date. The effect of adopting the provisions of ASC 105 was immaterial to FHN. In accordance with ASC 105, all references to authoritative accounting standards have been revised to reflect their Codification
citation.
Effective June 30, 2009, FHN adopted the provisions of the FASB Codification update to ASC 825-10-50, which requires disclosures about fair value of financial instruments in interim financial statements. ASC 825-10-50, as amended, requires that disclosures be included in both interim and annual financial
statements of the methods and significant assumptions used to estimate the fair value of financial instruments. Comparative disclosures are
81
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
required only for periods ending subsequent to initial adoption. Upon adoption of the amendments to ASC 825-10-50, FHN revised its disclosures accordingly.
Effective June 30, 2009, FHN adopted ASC 855-10 which provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. ASC 855-10-50 requires disclosure of the date through which subsequent events have been evaluated
and whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. An assessment of subsequent events must be performed for both interim and annual reporting periods. FHN initially applied the guidance of ASC 855-10 when assessing
subsequent events through the time of the filing of the financial statements for the quarter ended June 30, 2009, and the effects of adoption were not material.
In April 2009, the FASB issued a Codification update to ASC 320-10-35 which replaces the intent and ability to hold to recovery indicator of other-than-temporary impairment in ASC 320-10-35 for debt securities. The updated provisions of ASC 320-10-35 specify that a debt security is considered other-than-
temporarily impaired when an entitys management intends to sell the security or that it is more-likely-than-not that the entity will be required to sell the security prior to recovery of its cost basis. ASC 320-10-35, as amended, requires that for impaired held-to-maturity and available-for-sale debt securities that an
entity does not intend to sell and will not be required to sell prior to recovery but for which credit losses exist, the other-than-temporary impairment should be separated between the total impairment related to credit losses, which should be recognized in current earnings, and the amount of impairment related to all
other factors, which should be recognized in other comprehensive income. ASC 320-10-35, as amended, discusses the proper interaction of its guidance with SEC Staff Accounting Bulletin Topic 5M, which provides additional factors that must be considered in an other-than-temporary impairment analysis. ASC
320-10-35, as amended, also provides that in periods in which other-than-temporary impairments are recognized, the total impairment must be presented in the investors income statement with an offset for the amount of total impairment that is recognized in other comprehensive income. ASC 320-10-35 requires
additional disclosures including a rollforward of amounts recognized in earnings for debt securities for which an other-than-temporary impairment has been recognized and the noncredit portion of the other-than-temporary impairment that has been recognized in other comprehensive income. FHN initially applied the
guidance provided in the Codification update to ASC 320-10-35 when assessing debt securities for other-than-temporary impairment as of March 31, 2009 and the effects of adoption were not material.
In April 2009, the FASB issued a Codification update to ASC 820-10 which provides factors that an entity should consider when determining whether a market for an asset is not active. If after evaluating the relevant factors, the evidence indicates that a market is not active, ASC 820-10 provides an additional list of
factors that an entity must consider when determining whether events and circumstances indicate that a transaction which occurred in such inactive market is orderly. ASC 820-10, as amended, requires that entities place more weight on observable transactions determined to be orderly and less weight on
transactions for which there is insufficient information to determine whether the transaction is orderly when determining the fair value of an asset or liability. The Codification update to ASC 820-10 requires enhanced disclosures, including disclosure of a change in valuation technique which results from its
application and disclosure of fair value measurements for debt and equity securities by major security types. FHN initially applied the guidance provided in the Codification update to ASC 820-10 in its fair value measurements as of March 31, 2009 and the effects of adoption were not significant.
Effective January 1, 2009, FHN adopted the provisions of the Codification update to ASC 820 for existing fair value measurement requirements related to non-financial assets and liabilities which are recognized at fair value on a non-recurring basis. The effective date for the application of ASC 820s measurement
framework to such non-financial assets and liabilities was previously delayed under transitional guidance issued by the FASB. ASC 820, as amended, establishes a hierarchy to be used in performing measurements of fair value. Additionally, the updated provisions of ASC 820 emphasize that fair value should be
determined from the perspective of a market participant while also indicating that valuation methodologies should first reference available market data before using internally developed assumptions. ASC 820, as amended, also provides expanded disclosure requirements regarding the effects of fair value
measurements on the financial statements. The effect of adopting the updated provisions of ASC 820 for non-financial assets and liabilities which are recognized at fair value on a non-recurring basis on January 1, 2009, was not significant to FHN. Effective January 1, 2008, FHN adopted ASC 820s Codification
update for existing fair value measurement requirements related to financial assets and liabilities as
82
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
well as to non-financial assets and liabilities which are remeasured at least annually. Upon the adoption of the updated provisions of ASC 820 for financial assets and liabilities as well as non-financial assets and liabilities remeasured at least annually on January 1, 2008, a negative after-tax cumulative-effect
adjustment of $12.5 million was made to the opening balance of undivided profits for interest rate lock commitments which FHN previously measured under the guidance of ASC 815-10-45. The effect of the change in accounting for these interest rate lock commitments produced a positive effect of $19.4 million
on 2008 pre-tax earnings as existing commitments were delivered as loans and additional commitments that would have been deferred under the guidance of ASC 815-10-45 were made. Substantially all commitments existing at August 31, 2008 were sold.
Effective January 1, 2009, FHN adopted the provisions of the Codification update to ASC 805 and ASC 810. ASC 805, as amended, requires that an acquirer recognize the assets acquired and liabilities assumed in a business combination, as well as any noncontrolling interest in the acquiree, at their fair values as
of the acquisition date, with limited exceptions. Additionally, the updated provisions of ASC 805 provide that an acquirer cannot specify an effective date for a business combination that is separate from the acquisition date. ASC 805, as amended, also provides that acquisition-related costs which an acquirer incurs
should be expensed in the period in which the costs are incurred and the services are received. ASC 810, as amended, requires that acquired assets and liabilities be measured at full fair value without consideration to ownership percentage. Under the updated provisions of ASC 810, any noncontrolling interests in
an acquiree should be presented as a separate component of equity rather than on a mezzanine level. Additionally, ASC 810, as amended, provides that net income or loss should be reported in the consolidated income statement at its consolidated amount, with disclosure on the face of the consolidated income
statement of the amount of consolidated net income which is attributable to the parent and noncontrolling interests, respectively. The retrospective application of ASC 810s presentation and disclosure requirements resulted in an increase to consolidated net income of $14.0 million for 2008 and $18.8 million for
2007. FHN also recognized an increase of total shareholders equity of $295.2 million upon adoption of the amendments to ASC 810 as a result of reclassifying the noncontrolling interest previously recognized on the Consolidated Statements of Condition as Preferred stock of subsidiary as a separate component
of equity.
Effective January 1, 2009, FHN adopted the provisions of an additional Codification update to ASC 805 which requires that an acquirer recognize at fair value as of the acquisition date an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of
the asset or liability can be determined during the measurement period. ASC 805, as amended, provides that if the acquisition-date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or
liability should be recognized at the acquisition date if information available before the end of the measurement period indicates that it is probable that an asset existed or a liability had been incurred at the acquisition date and the amount of the asset or liability can be reasonably estimated. Additionally, ASC 805,
as amended, requires enhanced disclosures regarding assets and liabilities arising from contingencies which are recognized at the acquisition date of a business combination, including the nature of the contingencies, the amounts recognized at the acquisition date and the measurement basis applied. The adoption
of the Codification update to ASC 805 had no effect on FHNs statement of condition or results of operations.
Effective January 1, 2009, FHN adopted the provisions of the Codification update to ASC 815-10-50 which provides amendments that enhance disclosures related to derivatives accounted for in accordance with ASC 815 and reconsiders existing disclosure requirements for such derivatives and any related hedging
items. The additional disclosures provided in ASC 815-10-50, as amended, are required for both interim and annual reporting periods. Upon adoption of the Codification update to ASC 815-10-50, FHN revised its disclosures accordingly.
FHN also adopted the provisions of the Codification update to ASC 860-10 as of January 1, 2009, for initial transfers of financial assets executed after such date. The Codification update amends ASC 860-10 to permit a transferor and transferee to separately account for an initial transfer of a financial asset and a
related repurchase financing that are entered into contemporaneously with, or in contemplation of, one another if certain specified conditions are met at the inception of the transaction. ASC 860-10, as amended, requires that the two transactions have a valid and distinct business or economic purpose for being
entered into separately and that the repurchase financing not result in the initial transferor regaining control over the previously transferred financial asset. The effect of adopting the Codification update to ASC 860-10 was immaterial to FHN.
83
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
Effective December 31, 2008, FHN adopted the provisions of the Codification update to ASC 325 which aligns its impairment model for beneficial interests in securitized financial assets with the impairment model in ASC 320, resulting in a consistent determination of whether other-than-temporary impairments of
available for sale or held to maturity debt securities have occurred. Since FHN recognizes all retained interests from securitization transactions at fair value as trading securities and as all of its beneficial interests classified as available for sale securities are outside the scope of ASC 325, the effect of adopting the
Codification update to ASC 325 was immaterial to FHN.
Effective December 31, 2008, FHN adopted the provisions of the Codification update to ASC 810 and ASC 860 which require additional disclosures related to transfers of financial assets as well as FHNs involvement with variable interest entities and qualifying special purpose entities. Upon adoption of the
Codification update to ASC 810 and ASC 860, FHN revised its disclosures accordingly.
Effective December 31, 2008, FHN adopted the provisions of the Codification update to ASC 815-10-50 which requires sellers of credit derivatives and similar guarantee contracts to make disclosures regarding the nature, term, fair value, potential losses, and recourse provisions for those contracts. Since FHN is not
a seller of credit derivatives or similar financial guarantees, the effect of adopting the Codification update to ASC 815-10-50 was immaterial to FHN.
Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 825 which allows an irrevocable election to measure certain financial assets and liabilities at fair value on an instrument-by-instrument basis, with unrealized gains and losses recognized currently in earnings. Under ASC 825,
the fair value option may only be elected at the time of initial recognition of a financial asset or liability or upon the occurrence of certain specified events. Additionally, ASC 825 provides that application of the fair value option must be based on the fair value of an entire financial asset or liability and not selected
risks inherent in those assets or liabilities. ASC 825 requires that assets and liabilities which are measured at fair value pursuant to the fair value option be reported in the financial statements in a manner that separates those fair values from the carrying amounts of similar assets and liabilities which are measured
using another measurement attribute. ASC 825 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. Upon adoption of the updated provisions of ASC 825, FHN elected the fair value option on a prospective basis for almost all types of
mortgage loans originated for sale purposes. Additionally, in accordance with ASC 825s amendment of ASC 320, FHN began prospectively classifying cash flows associated with its retained interests in securitizations recognized as trading securities within investing activities in the Consolidated Statements of Cash
Flows.
Effective January 1, 2008, FHN adopted SEC Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (SAB No. 109) prospectively for derivative loan commitments issued or modified after that date. SAB No. 109 rescinds SAB No. 105s prohibition on inclusion of
expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109 also applies to any loan commitments for which fair value accounting is elected under ASC 825. FHN did not elect fair value accounting for any other loan commitments
under ASC 825. The prospective application of SAB No. 109 and the prospective election to recognize substantially all new mortgage loan originations at fair value under ASC 825 resulted in a positive net impact of $1.0 million on 2008 pre-tax earnings.
Effective January 1, 2008, FHN adopted the provisions of the Codification update which amended ASC 820 to exclude ASC 840, Leases, from its scope. The adoption of the Codification update to ASC 820 had no effect on FHNs statement of condition or results of operations.
Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 715 which requires that a liability be recognized for contracts written to employees which provide future postretirement benefits that are covered by endorsement split-dollar life insurance arrangements because such obligations
are not considered to be effectively settled upon entering into the related insurance arrangements. FHN recognized a decrease to undivided profits of $8.5 million, net of tax, upon adoption of the amendments to ASC 715.
Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 815 which permits the offsetting of fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with
the same counterparty
84
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
under the same master netting arrangement. Upon adoption of the amendments to ASC 815, entities were permitted to change their previous accounting policy election to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. ASC 815, as amended, requires
additional disclosures for derivatives and collateral associated with master netting arrangements, including the separate disclosure of amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting arrangements as of the end of each reporting period for
entities that made an accounting policy decision to not offset fair value amounts. FHN retained its previous accounting policy election to not offset fair value amounts recognized for derivative instruments under master netting arrangements upon adoption of the updated provisions of ASC 815, and has revised its
disclosures accordingly.
FHN also adopted the provisions of the Codification update to ASC 815-20-25 as of January 1, 2008, for hedging relationships designated on or after such date. The updated provisions of ASC 815-20-25 explicitly permit use of the shortcut method for hedging relationships in which an interest rate swap has a
nonzero fair value at inception of the hedging relationship which is attributable solely to the existence of a bid-ask spread in the entitys principal market under ASC 820. Additionally, ASC 815-20-25, as amended, allows an entity to apply the shortcut method to a qualifying fair value hedge when the hedged item
has a trade date that differs from its settlement date because of generally established conventions in the marketplace in which the transaction to acquire or issue the hedged item is executed. Preexisting shortcut hedging relationships were analyzed as of the adoption date of the amendments to ASC 815-20-25 to
determine whether they complied with the revised shortcut criteria at their inception or should be dedesignated prospectively. The adoption of the updated provisions of ASC 815-20-25 had no effect on FHNs financial position or results of operations as all of FHNs preexisting hedging relationships met the
requirements of ASC 815-20-25, as amended, at their inception.
Effective January 1, 2007, FHN adopted the provisions of the Codification update to ASC 815-15-25 which permits fair value remeasurement for hybrid financial instruments that contain an embedded derivative that otherwise would require bifurcation. Additionally, ASC 815-15-25, as amended, clarifies the
accounting guidance for beneficial interests in securitizations. Under the provisions of the Codification update, all beneficial interests in a securitization require an assessment in accordance with ASC 815-15-25 to determine if an embedded derivative exists within the instrument. In addition, effective January 1,
2007, FHN adopted the provisions of an additional Codification update to ASC 815-15-25 which provides an exemption from the embedded derivative test of ASC 815-15-25-26(b) for instruments that would otherwise require bifurcation if the test is met solely because of a prepayment feature included within the
securitized interest and prepayment is not controlled by the security holder. Since FHN presents all retained interests in its proprietary securitizations as trading securities and due to the clarifying guidance of ASC 815-15-25, as amended, the impact of adopting the Codification update to ASC 815-15-25 was
immaterial to the results of operations.
Effective January 1, 2007, FHN adopted the provisions of the Codification update to ASC 740 which provides guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740, as amended, also provides guidance on the classification and
disclosure of uncertain tax positions in the financial statements. Upon adoption of the updated provisions of ASC 740, FHN recognized a cumulative effect adjustment that decreased the beginning balance of undivided profits in the amount of $.9 million for differences between the tax benefits recognized in the
statements of condition prior to the adoption of the Codification update to ASC 740 and the amounts reported after adoption.
Effective January 1, 2007, FHN adopted the provisions of the Codification update to ASC 325-30 which provides that in addition to cash surrender value, the asset recognized for a life insurance contract should consider certain other provisions included in a policys contractual terms with additional amounts being
discounted if receivable beyond one year. Additionally, ASC 325-30, as amended, requires that the determination of the amount that could be realized under an insurance contract be performed at the individual policy level. FHN recognized a reduction of undivided profits in the amount of $.5 million as a result of
adopting the Codification update to ASC 325-30.
Effective January 1, 2007, FHN elected early adoption of the final provisions of the Codification update to ASC 715 which required that the annual measurement date of a defined benefit postretirement plans assets and liabilities be as of the date of the financial statements. As a result of adopting the measurement
date provisions of the Codification update to ASC 715, total equity was increased by $6.2 million on January 1, 2007, consisting of a
85
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
reduction to undivided profits of $2.1 million and a credit to accumulated other comprehensive income of $8.3 million.
Accounting Changes Issued but Not Currently Effective In January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06), which updates ASC 820 to require disclosure of significant transfers into and out of Level 1 and Level 2 of the
fair value hierarchy, as well as disclosure of an entitys policy for determining when transfers between all levels of the hierarchy are recognized. ASC 820, as amended, also provides enhanced disclosure requirements regarding purchases, sales, issuances, and settlements related to recurring Level 3 measurements,
and requires separate disclosure in the Level 3 reconciliation of total gains and losses recognized in other comprehensive income. The updated provisions of ASC 820 require that fair value measurement disclosures be provided by each class of assets and liabilities, and that disclosures providing a description of
the valuation techniques and inputs used to measure fair value be included for both recurring and nonrecurring fair value measurements classified as either Level 2 or Level 3. The provisions of ASU 2010-06 are effective for periods beginning after December 15, 2009, except for the requirement to provide the
Level 3 activity of purchases, sales, issuances, and settlements on a gross basis which will be effective for periods beginning after December 15, 2010. Comparative disclosures are required only for periods ending subsequent to initial adoption. FHN is currently assessing the effects of adopting the provisions of
ASU 2010-06.
In June 2009, the FASB issued guidance, the provisions of which have been subsequently reissued as Accounting Standards Update 2009-16, Accounting for Transfers of Financial Assets (ASU 2009-16). ASU 2009-16 updates ASC 860 to provide for the removal of the qualifying special purpose entity (QSPE)
concept from GAAP, resulting in the evaluation of all former QSPEs for consolidation on and after January 1, 2010 in accordance with ASC 810. The amendments to ASC 860 modify the criteria for achieving sale accounting for transfers of financial assets and define the term participating interest to establish
specific conditions for reporting a transfer of a portion of a financial asset as a sale. The updated provisions of ASC 860 also provide that a transferor should recognize and initially measure at fair value all assets obtained (including a transferors beneficial interest) and liabilities incurred as a result of a transfer of
financial assets accounted for as a sale. ASC 860, as amended, requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The
provisions of ASU 2009-16 are effective prospectively for new transfers of financial assets occurring in fiscal years beginning after November 15, 2009, and in interim periods within those fiscal years. ASC 860s amended disclosure requirements should be applied to transfers that occurred both before and after the
effective date of the Codification update, with comparative disclosures required only for periods subsequent to initial adoption for those disclosures not previously required under the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The effect of adopting
the provisions of ASU 2009-16 will not be material to FHN.
In June 2009, the FASB issued guidance, the provisions of which have been subsequently reissued as Accounting Standards Update 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-17 amends ASC 810 to revise the criteria for
determining the primary beneficiary of a variable interest entity (VIE) by replacing the quantitative-based risks and rewards test previously required with a qualitative analysis. While ASC 810, as amended, retains the previous guidance in ASC 810 which requires a reassessment of whether an entity is a VIE only
when certain triggering events occur, it adds an additional criteria which triggers a reassessment of an entitys status when an event occurs such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity
that most significantly impact the entitys economic performance. Additionally, the amendments to ASC 810 require continual reconsideration of conclusions regarding which interest holder is the VIEs primary beneficiary. Following the Codification update, ASC 810 will require separate presentation on the face of the
balance sheet of the assets of a consolidated VIE that can only be used to settle the VIEs obligations and the liabilities of a consolidated VIE for which creditors or beneficial interest holders have no recourse to the general credit of the primary beneficiary (e.g., consolidated residential mortgage securitization trusts).
ASC 810, as amended, also requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The provisions of ASU 2009-17 are effective for
periods beginning after November 15,
86
FIRST HORIZON NATIONAL CORPORATION
Note 1 q Summary of Significant Accounting Policies (continued)
2009 and require reevaluation under ASC 810s amended consolidation requirements of all QSPEs and entities currently subject to ASC 810 as of the beginning of the first annual period that begins after November 15, 2009. If consolidation of a VIE is required upon initial adoption, the assets, liabilities, and
noncontrolling interests of the VIE should be measured at their carrying amounts as if ASC 810, as amended, had been applied from inception of the VIE, with any difference between the net amounts recognized and the amount of any previously recognized interests reflected as a cumulative effect adjustment to
undivided profits. However, if determining the carrying amounts is not practicable, the assets, liabilities, and noncontrolling interests of the VIE may be measured at fair value. Further, if determining the carrying amounts is not practicable, and if the activities of the VIE are primarily related to securitizations or other
forms of asset-backed financings and the assets of the VIE can be used only to settle obligations of the entity, then the assets and liabilities of the VIE may be measured at their unpaid principal balances. The fair value option provided under ASC 825 may also be elected for financial assets and financial liabilities
requiring consolidation as a result of initial adoption, provided that the election is made for all eligible financial assets and financial liabilities of the VIE. If initial application of the amendments to ASC 810 results in deconsolidation of a VIE, any retained interest in the VIE should be measured at its carrying value as
if ASC 810, as amended, had been applied from inception of the VIE. Comparative disclosures are required only for periods subsequent to initial adoption for those disclosures not previously required under the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15,
2008.
FHN is continuing to assess the effects of adopting the provisions of ASU 2009-17 on all of its proprietary residential mortgage securitization trusts based on the size and priority of interests retained. Based on its current level of involvement, upon adoption of the Codification update to ASC 810, FHN anticipates
that consumer loans with an aggregate unpaid principal balance of approximately $250 million will be prospectively consolidated as the retention of MSR and other retained interests, including residual interests and subordinated bonds, results in FHN being considered the related trusts primary beneficiary under the
qualitative analysis required by ASC 810, as amended.
Additionally, FHN has determined that calculation of carrying values is not practicable and thus it anticipates using the unpaid principal balance measurement methodology upon adoption, with the ALLL related to the newly consolidated loans determined using FHNs standard practices. Upon adoption of the
provisions of ASU 2009-17, MSR and trading assets held in relation to the newly consolidated trusts will be removed from the Consolidated Statements of Condition. FHN expects to recognize an increase to the opening balance of undivided profits approximating $6.0 million for the cumulative effect of adopting the
amendments to ASC 810. An adjustment to the ALLL through provision approximating $10 million ($6 million, net of tax) is expected to be recognized by FHN in first quarter 2010 in relation to the newly consolidated loans.
Note 2 q Acquisitions/Divestitures
In 2009, FHN continued its efforts to refocus on core businesses and executed the sale and closure of FHNs Atlanta insurance business and Louisville First Express Remittance Processing location (FERP). FHN recognized a loss of $7.5 million on the sale of the Atlanta insurance business and a $1.7 million loss
on the FERP divestiture. These losses are reflected on the Consolidated Statements of Income as a loss on divestiture within noninterest income. The losses on divestitures primarily reflect goodwill write-offs associated with the sale. Additionally, FHN recognized a goodwill impairment associated with certain assets
excluded from the sale of the Atlanta insurance business. The loss is reflected as a goodwill impairment within nointerest expense on the Consolidated Statements of Income. See Note 7 Intangible Assets for further discussion. FHN continues to have an insurance business within its Tennessee banking footprint
and continues to operate other remittance processing locations.
In 2009, FHN reached a definitive agreement for the sale of FTN ECM, the institutional equity research division of FTN Financial. As a result of this agreement, FHN incurred a pre-tax goodwill impairment of $14.3 million (approximately $9 million after taxes) in 2009. The financial results of FTN ECM, including the
goodwill impairment, are reflected in the Income/loss from discontinued operations, net of tax line on the Consolidated Statements of Income for all periods presented. During first quarter 2010, the contracted sale of FTN ECM failed to close, and FHN exited this business.
87
FIRST HORIZON NATIONAL CORPORATION
Note 2 q Acquisitions/Divestitures (continued)
Effective August 31, 2008, FHN sold more than 230 retail and wholesale mortgage origination offices nationwide, the loan origination and servicing platform, substantially all of FHNs mortgage origination pipeline and related hedges, certain fixed assets, and other associated assets to MetLife. MetLife did not acquire
any portion of FHNs mortgage loan warehouse. FHN retained its mortgage operations in and around Tennessee, continuing to originate home loans for customers in its regional banking market footprint. FHN also sold servicing assets and related hedges, on $19.1 billion of first lien mortgage loans and associated
custodial deposits. Additionally, FHN entered into a subservicing agreement with MetLife for the remainder of FHNs servicing portfolio. MetLife generally paid book value for the assets and liabilities it acquired, less a purchase price reduction. The assets and liabilities related to the mortgage operations divested were
included in the Mortgage Banking segment and were reflected as divestiture on the Consolidated Statements of Condition for the reporting period ended June 30, 2008. FHN recognized a loss on divestiture of $17.5 million in the third quarter 2008 and a gain on divestiture of $0.9 million in the fourth quarter of
2008. Gains and losses related to this transaction were included in the noninterest income section of the Consolidated Statements of Income as gains/losses on divestitures.
Due to efforts initiated by FHN in 2007 to improve profitability, FHN sold 34 branches in Atlanta, Baltimore, Dallas, and Northern Virginia which were outside the Regional Banks footprint. The First Horizon Bank branch sales were completed in both 2007 and 2008. These divestitures resulted in aggregate gains of
$15.7 million during 2007 and losses of $2.4 million during 2008. These transactions resulted in the transfer of certain loans, certain fixed assets (including branch locations), and assumption of all the deposit relationships of the First Horizon Bank branches that were divested. The assets and liabilities related to
the First Horizon Bank branches were included in the Regional Banking segment and were reflected as divestiture on the Consolidated Statements of Condition for reporting periods ended prior to June 30, 2008. The gains and losses realized on the disposition of First Horizon Bank branches were included in the
noninterest income section of the Consolidated Statements of Income as gains/losses on divestitures.
In addition to the divestitures mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.
88
FIRST HORIZON NATIONAL CORPORATION
Note 3 q Investment Securities
The following tables summarize FHNs available for sale securities on December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
On December 31, 2009 |
|
Amortized Cost |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
$ |
|
47,983 |
|
|
|
$ |
|
146 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
48,129 |
|
Government agency issued MBS (a) |
|
|
|
941,392 |
|
|
|
|
58,685 |
|
|
|
|
- |
|
|
|
|
1,000,077 |
|
Government agency issued CMO (a) |
|
|
|
1,148,599 |
|
|
|
|
42,919 |
|
|
|
|
(2,088 |
) |
|
|
|
|
1,189,430 |
|
Other U.S. government agencies (a) |
|
|
|
111,849 |
|
|
|
|
6,296 |
|
|
|
|
- |
|
|
|
|
118,145 |
|
States and municipalities |
|
|
|
44,400 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
44,400 |
|
Equity (b) |
|
|
|
293,318 |
|
|
|
|
450 |
|
|
|
|
(177 |
) |
|
|
|
|
293,591 |
|
Other |
|
|
|
667 |
|
|
|
|
29 |
|
|
|
|
- |
|
|
|
|
696 |
|
|
Total securities available for sale (c) |
|
|
$ |
|
2,588,208 |
|
|
|
$ |
|
108,525 |
|
|
|
$ |
|
(2,265 |
) |
|
|
|
$ |
|
2,694,468 |
|
|
|
(a) |
|
|
|
Includes securities issued by government sponsored entities. |
|
(b) |
|
|
|
Includes restricted investments in FHLB-Cincinnati stock of $125.5 million and FRB stock of $66.3 million. The remainder is money market, venture capital, and cost method investments. |
|
(c) |
|
|
|
Includes $2.3 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes. As of December 31, 2009, FHN had pledged $1.5 billion of the $2.3 billion pledged available for sale securities as collateral for securities sold under repurchase agreements. Additionally, $44.0 million is restricted pursuant to reinsurance contract
agreements.
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
On December 31, 2008 |
|
Amortized Cost |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
$ |
|
47,911 |
|
|
|
$ |
|
809 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
48,720 |
|
Government agency issued MBS (a) |
|
|
|
1,217,608 |
|
|
|
|
31,909 |
|
|
|
|
- |
|
|
|
|
1,249,517 |
|
Government agency issued CMO (a) |
|
|
|
1,303,378 |
|
|
|
|
34,602 |
|
|
|
|
- |
|
|
|
|
1,337,980 |
|
Other U.S. government agencies (a) |
|
|
|
131,216 |
|
|
|
|
2,485 |
|
|
|
|
- |
|
|
|
|
133,701 |
|
States and municipalities |
|
|
|
65,915 |
|
|
|
|
- |
|
|
|
|
(555 |
) |
|
|
|
|
65,360 |
|
Equity (b) |
|
|
|
287,663 |
|
|
|
|
33 |
|
|
|
|
- |
|
|
|
|
287,696 |
|
Other |
|
|
|
2,214 |
|
|
|
|
- |
|
|
|
|
(35 |
) |
|
|
|
|
2,179 |
|
|
Total securities available for sale (c) |
|
|
$ |
|
3,055,905 |
|
|
|
$ |
|
69,838 |
|
|
|
$ |
|
(590 |
) |
|
|
|
$ |
|
3,125,153 |
|
|
|
(a) |
|
|
|
Includes securities issued by government sponsored entities. |
|
(b) |
|
|
|
Includes restricted investments in FHLB-Cincinnati stock of $125.5 million and FRB stock of $44.3 million. The remainder is money market, venture capital, and cost method investments. |
|
(c) |
|
|
|
Includes $2.7 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes. As of December 31, 2008, FHN had pledged $1.5 billion of the $2.7 billion pledged available for sale securities as collateral for securities sold under repurchase agreements. Additionally, $53.8 million is restricted pursuant to reinsurance contract
agreements.
|
National banks chartered by the federal government are, by law, members of the Federal Reserve System. Each member bank is required to own stock in its regional Federal Reserve Bank. Given this requirement, Federal Reserve stock may not be sold, traded, or pledged as collateral for loans. Membership in the
Federal Home Loan Bank (FHLB) network requires ownership of capital stock. Member banks are entitled to borrow funds from the FHLB and are required to pledge mortgage loans as collateral. Investments in the FHLB are non-transferable and, generally, membership is maintained primarily to provide a source of
liquidity as needed.
89
FIRST HORIZON NATIONAL CORPORATION
Note 3 q Investment Securities (continued)
Provided below are the amortized cost and fair value by contractual maturity for the available for sale securities portfolio on December 31, 2009:
|
|
|
|
|
(Dollars in thousands) |
|
Available for Sale |
|
Amortized Cost |
|
Fair Value |
|
Within 1 year |
|
|
$ |
|
39,987 |
|
|
|
$ |
|
40,114 |
|
After 1 year; within 5 years |
|
|
|
27,351 |
|
|
|
|
28,486 |
|
After 5 years; within 10 years |
|
|
|
95,734 |
|
|
|
|
100,914 |
|
After 10 years |
|
|
|
41,160 |
|
|
|
|
41,160 |
|
|
Subtotal |
|
|
|
204,232 |
|
|
|
|
210,674 |
|
|
Government agency issued MBS and CMO |
|
|
|
2,089,991 |
|
|
|
|
2,189,507 |
|
Equity and other securities |
|
|
|
293,985 |
|
|
|
|
294,287 |
|
|
Total |
|
|
$ |
|
2,588,208 |
|
|
|
$ |
|
2,694,468 |
|
|
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The table below provides information on realized gross gains and realized gross losses resulting from sales of the available for sale portfolio for the twelve months ended December 31:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Available for Sale |
|
Debt |
|
Equity |
|
Total |
|
December 31, 2009 |
|
|
|
|
|
|
Gross gains on sales |
|
|
$ |
|
- |
|
|
|
$ |
|
2,032 |
|
|
|
$ |
|
2,032 |
|
Gross losses on sales |
|
|
|
- |
|
|
|
|
(381 |
) |
|
|
|
|
(381 |
) |
|
|
December 31, 2008 |
|
|
|
|
|
|
Gross gains on sales |
|
|
$ |
|
- |
|
|
|
$ |
|
67,253 |
|
|
|
$ |
|
67,253 |
|
Gross losses on sales |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
December 31, 2007 |
|
|
|
|
|
|
Gross gains on sales |
|
|
$ |
|
6,289 |
|
|
|
$ |
|
3,914 |
|
|
|
$ |
|
10,203 |
|
Gross losses on sales |
|
|
|
- |
|
|
|
|
(1,440 |
) |
|
|
|
|
(1,440 |
) |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
Proceeds from the sale of AFS securities associated with the gains and losses reflected in the table above for the years 2009, 2008, and 2007, were $4.4 million, $110.5 million, and $602.1 million, respectively.
Losses totaling $.5 million, $1.5 million, and $10.4 million for the years 2009, 2008, and 2007, respectively, were recognized for securities that, in the opinion of management have been other-than-temporarily impaired. The other-than-temporarily impaired securities are related to cost method investment securities.
90
FIRST HORIZON NATIONAL CORPORATION
Note 3 q Investment Securities (continued)
The following tables provide information on investments within the available for sale portfolio that have unrealized losses on December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
On December 31, 2009 |
|
Less than 12 months |
|
12 Months or Longer |
|
Total |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
Government agency issued CMO |
|
|
$ |
|
142,430 |
|
|
|
$ |
|
(2,088 |
) |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
142,430 |
|
|
|
$ |
|
(2,088 |
) |
|
|
Total debt securities |
|
|
|
142,430 |
|
|
|
|
(2,088 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
142,430 |
|
|
|
|
(2,088 |
) |
|
Equity |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
55 |
|
|
|
|
(177 |
) |
|
|
|
|
55 |
|
|
|
|
(177 |
) |
|
|
Total temporarily impaired securities |
|
|
$ |
|
142,430 |
|
|
|
$ |
|
(2,088 |
) |
|
|
|
$ |
|
55 |
|
|
|
$ |
|
(177 |
) |
|
|
|
$ |
|
142,485 |
|
|
|
$ |
|
(2,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
On December 31, 2008 |
|
Less than 12 months |
|
12 Months or Longer |
|
Total |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
States and municipalities |
|
|
$ |
|
945 |
|
|
|
$ |
|
(555 |
) |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
945 |
|
|
|
$ |
|
(555 |
) |
|
Other |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
813 |
|
|
|
|
(35 |
) |
|
|
|
|
813 |
|
|
|
|
(35 |
) |
|
|
Total debt securities |
|
|
|
945 |
|
|
|
|
(555 |
) |
|
|
|
|
813 |
|
|
|
|
(35 |
) |
|
|
|
|
1,758 |
|
|
|
|
(590 |
) |
|
|
Total temporarily impaired securities |
|
|
$ |
|
945 |
|
|
|
$ |
|
(555 |
) |
|
|
|
$ |
|
813 |
|
|
|
$ |
|
(35 |
) |
|
|
|
$ |
|
1,758 |
|
|
|
$ |
|
(590 |
) |
|
|
FHN has reviewed investment securities that are in unrealized loss positions in accordance with its accounting policy for other-than-temporary impairment and does not consider them other-than-temporarily impaired. FHN does not intend to sell the debt securities and it is more-likely-than-not that FHN will not be
required to sell the securities prior to recovery. Additionally, the decline in value is primarily attributable to interest rates and not credit losses. For equity securities, FHN has both the ability and intent to hold these securities for the time necessary to recover the amortized cost.
91
FIRST HORIZON NATIONAL CORPORATION
Note 4 q Loans
A summary of the major categories of loans outstanding on December 31 is shown below:
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Commercial: |
|
|
|
|
Commercial, financial and industrial |
|
|
$ |
|
7,159,370 |
|
|
|
$ |
|
7,863,727 |
|
Real estate commercial |
|
|
|
1,479,888 |
|
|
|
|
1,454,040 |
|
Real estate construction |
|
|
|
924,475 |
|
|
|
|
1,778,140 |
|
Retail: |
|
|
|
|
Real estate residential |
|
|
|
7,362,458 |
|
|
|
|
8,161,435 |
|
Real estate construction |
|
|
|
229,487 |
|
|
|
|
980,798 |
|
Other retail |
|
|
|
121,526 |
|
|
|
|
135,779 |
|
Credit card receivables |
|
|
|
192,036 |
|
|
|
|
189,554 |
|
Real estate loans pledged against other collateralized borrowings |
|
|
|
654,644 |
|
|
|
|
714,717 |
|
|
Loans, net of unearned income |
|
|
|
18,123,884 |
|
|
|
|
21,278,190 |
|
Allowance for loan losses |
|
|
|
896,914 |
|
|
|
|
849,210 |
|
|
Total net loans |
|
|
$ |
|
17,226,970 |
|
|
|
$ |
|
20,428,980 |
|
|
On December 31, 2009, $4.4 billion of Commercial, Financial, and Industrial loans were pledged to secure potential discount window borrowings from the Federal Reserve Bank. Additionally, $7.9 billion of Residential Real Estate loans were pledged to secure borrowings from the Federal Home Loan Bank.
FHN has a significant concentration of loans secured by residential real estate (49 percent of total loans), the majority of which is in the retail real estate residential portfolio including real estate loans pledged against other collateralized borrowings (44 percent of total loans). This portfolio is primarily comprised of
home equity lines and loans. While this portfolio has been stressed by the downturn in the housing market and rising unemployment, it contains loans extended to strong borrowers with high credit scores and is geographically diversified. Most of the remaining residential real estate loans are in the winding-down
national construction portfolios (5 percent of total loans) whose exposures have been significantly reduced since 2008.
Additionally, on December 31, 2009, FHN had bank-related and trust preferred loans (including loans to bank and insurance-related businesses) totaling $.7 billion (4 percent of total loans) that are included within the Commercial, Financial, and Industrial portfolio. Due to higher credit losses experienced throughout
the financial services industry and the limited availability of market liquidity, these loans have experienced stress during the economic downturn.
On December 31, 2009, FHN did not have any concentrations of Commercial, Financial, and Industrial loans in any single industry of 10 percent or more of total loans.
Nonperforming loans consist of loans which management has identified as impaired, other nonaccrual loans, and loans that have been restructured. On December 31, 2009 and 2008, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured.
The following table presents nonperforming loans on December 31:
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Impaired loans |
|
|
$ |
|
509,073 |
|
|
|
$ |
|
474,090 |
|
Other nonaccrual loans* |
|
|
|
428,611 |
|
|
|
|
579,558 |
|
|
Total nonperforming loans |
|
|
$ |
|
937,684 |
|
|
|
$ |
|
1,053,648 |
|
|
|
* |
|
|
|
On December 31, 2009 and 2008, other nonaccrual loans included $38.3 million and $8.5 million, respectively, of loans held for sale.
|
Generally, when a loan is placed on nonaccrual status, FHN applies the entire amount of any subsequent payments (including interest) to the outstanding principal balance. Consequently, a substantial portion of the interest received related to nonaccrual loans has been applied to principal. Under the original terms
of the loan,
92
FIRST HORIZON NATIONAL CORPORATION
Note 4 q Loans (continued)
interest income would have been approximately $27.9 million for impaired loans and $22.0 million for other nonaccrual loans outstanding on December 31, 2009. During 2008, interest income would have been approximately $32.4 million for impaired loans and $23.8 million for other nonaccrual loans under their
original terms. During 2007, interest income would have been $8.8 million for impaired loans and $8.0 million for other nonaccrual loans under their original terms. The average balance of impaired loans was $532.2 million for 2009, $328.3 million for 2008, and $65.4 million for 2007. Generally, impaired
commercial loans considered collateral dependent have been charged down to net realizable value and other impaired loans have an associated allowance for loan loss.
Activity in the allowance for loan losses related to non-impaired and impaired loans for years ended December 31 is summarized as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Non-impaired |
|
Impaired |
|
Total |
|
Balance on December 31, 2006 |
|
|
$ |
|
206,292 |
|
|
|
$ |
|
9,993 |
|
|
|
$ |
|
216,285 |
|
Provision for loan losses |
|
|
|
221,253 |
|
|
|
|
51,512 |
|
|
|
|
272,765 |
|
Adjustment due to divestiture, acquisition or transfer |
|
|
|
(14,943 |
) |
|
|
|
|
- |
|
|
|
|
(14,943 |
) |
|
Charge-offs |
|
|
|
(99,625 |
) |
|
|
|
|
(47,282 |
) |
|
|
|
|
(146,907 |
) |
|
Recoveries |
|
|
|
12,906 |
|
|
|
|
2,235 |
|
|
|
|
15,141 |
|
|
Net charge-offs |
|
|
|
(86,719 |
) |
|
|
|
|
(45,047 |
) |
|
|
|
|
(131,766 |
) |
|
|
Balance on December 31, 2007 |
|
|
|
325,883 |
|
|
|
|
16,458 |
|
|
|
|
342,341 |
|
Provision for loan losses |
|
|
|
828,963 |
|
|
|
|
251,037 |
|
|
|
|
1,080,000 |
|
Adjustment due to divestiture, acquisition or transfer |
|
|
|
(370 |
) |
|
|
|
|
- |
|
|
|
|
(370 |
) |
|
Charge-offs |
|
|
|
(333,462 |
) |
|
|
|
|
(258,966 |
) |
|
|
|
|
(592,428 |
) |
|
Recoveries |
|
|
|
15,893 |
|
|
|
|
3,774 |
|
|
|
|
19,667 |
|
|
Net charge-offs |
|
|
|
(317,569 |
) |
|
|
|
|
(255,192 |
) |
|
|
|
|
(572,761 |
) |
|
|
Balance on December 31, 2008 |
|
|
|
836,907 |
|
|
|
|
12,303 |
|
|
|
|
849,210 |
|
Provision for loan losses |
|
|
|
555,972 |
|
|
|
|
324,028 |
|
|
|
|
880,000 |
|
Charge-offs |
|
|
|
(553,853 |
) |
|
|
|
|
(323,108 |
) |
|
|
|
|
(876,961 |
) |
|
Recoveries |
|
|
|
37,095 |
|
|
|
|
7,570 |
|
|
|
|
44,665 |
|
|
Net charge-offs |
|
|
|
(516,758 |
) |
|
|
|
|
(315,538 |
) |
|
|
|
|
(832,296 |
) |
|
|
Balance on December 31, 2009 |
|
|
$ |
|
876,121 |
|
|
|
$ |
|
20,793 |
|
|
|
$ |
|
896,914 |
|
|
Amounts due from customers on acceptances and bank acceptances outstanding of $2.9 million, $2.0 million, and $3.4 million on December 31, 2009, 2008, and 2007, respectively, and are included in other assets and in other liabilities on the Consolidated Statements of Condition. Retail real estate construction
loans are a one-time close product where FHN provides construction and permanent mortgage financing to individuals for the purpose of constructing a home. Upon completion of construction, the permanent mortgage had historically been classified as held for sale and sold. Due to the market disruptions
experienced in 2008, demand in the secondary market for many of these permanent mortgages decreased significantly. FHN currently transfers the loans to held for sale or retains them in the loan portfolio based upon managements ability and intent at the time of conversion to permanent financing. FHN
transferred approximately $.2 million in 2009, $.1 billion in 2008, and $2.1 billion of OTC loans in 2007, from the loan portfolio to held-for-sale. Additionally, FHN transferred approximately $4.4 million, $.6 billion, and $.1 billion of real estate residential loans from held for sale into the loan portfolio in 2009, 2008,
and 2007, respectively.
93
FIRST HORIZON NATIONAL CORPORATION
Note 5 q Premises, Equipment and Leases
Premises and equipment on December 31 are summarized below:
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Land |
|
|
$ |
|
67,047 |
|
|
|
$ |
|
64,201 |
|
Buildings |
|
|
|
333,450 |
|
|
|
|
332,645 |
|
Leasehold improvements |
|
|
|
43,156 |
|
|
|
|
57,842 |
|
Furniture, fixtures and equipment |
|
|
|
190,289 |
|
|
|
|
221,894 |
|
|
Premises and equipment, at cost |
|
|
|
633,942 |
|
|
|
|
676,582 |
|
Less accumulated depreciation and amortization |
|
|
|
320,118 |
|
|
|
|
342,651 |
|
|
Premises and equipment, net |
|
|
$ |
|
313,824 |
|
|
|
$ |
|
333,931 |
|
|
FHN is obligated under a number of noncancelable operating leases for premises and equipment with terms up to 30 years, which may include the payment of taxes, insurance and maintenance costs.
Minimum future lease payments for noncancelable operating leases on premises and equipment on December 31, 2009, are shown below:
|
|
|
(Dollars in thousands) |
|
|
|
2010 |
|
|
$ |
|
32,025 |
|
2011 |
|
|
|
24,137 |
|
2012 |
|
|
|
18,880 |
|
2013 |
|
|
|
13,899 |
|
2014 |
|
|
|
9,353 |
|
2015 and after |
|
|
|
30,943 |
|
|
Total minimum lease payments |
|
|
$ |
|
129,237 |
|
|
Payments required under capital leases are not material.
Aggregate minimum income under sublease agreements for these periods is $11.4 million.
Rent expense incurred under all operating lease obligations for the years ended December 31 is as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Rent expense, gross (a) |
|
|
$ |
|
38,070 |
|
|
|
$ |
|
61,496 |
|
|
|
$ |
|
84,130 |
|
Sublease income |
|
|
|
(4,368 |
) |
|
|
|
|
(4,043 |
) |
|
|
|
|
(3,395 |
) |
|
|
Rent expense, net |
|
|
$ |
|
33,702 |
|
|
|
$ |
|
57,453 |
|
|
|
$ |
|
80,735 |
|
|
|
(a) |
|
|
|
Decrease primarily reflects the 2008 divestiture of certain mortgage banking operations.
|
Note 6 q Mortgage Servicing Rights
FHN recognizes all classes of mortgage servicing rights (MSR) at fair value. Classes of MSR are established based on market inputs used to determine the fair value of the servicing asset and FHNs risk management practices. See Note 22 Fair Value, the Determination of Fair Value section for a discussion of
FHNs MSR valuation methodology and Note 25 Derivatives and Off-Balance Sheet Arrangements for a discussion of how FHN hedges the fair value of MSR. The balance of MSR included on the Consolidated Statements of Condition represents the rights to service approximately $42.2 billion and $65.2 billion of
mortgage loans on December 31, 2009 and 2008, respectively, for which a servicing right has been capitalized.
In third quarter 2009, FHN reviewed the allocation of fair value between MSR and excess interest from prior first lien loan sales and securitizations. As a result, $11.9 million was reclassified from trading securities to MSR retained from securitizations and $.8 million was reclassified from MSR retained from prior
loan sales to trading securities. This reclassification is reflected in the rollforwards below.
94
FIRST HORIZON NATIONAL CORPORATION
Note 6 q Mortgage Servicing Rights (continued)
Following is a summary of changes in capitalized MSR related to proprietary securitization activities utilizing qualifying special purpose entities (QSPEs) as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
First Liens |
|
Second Liens |
|
HELOC |
|
Fair value on January 1, 2008 |
|
|
$ |
|
230,311 |
|
|
|
$ |
|
1,429 |
|
|
|
$ |
|
2,261 |
|
Addition of mortgage servicing rights |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
187 |
|
Reductions due to loan payments |
|
|
|
(22,869 |
) |
|
|
|
|
(259 |
) |
|
|
|
|
(412 |
) |
|
Changes in fair value due to: |
|
|
|
|
|
|
Changes in valuation model inputs or assumptions |
|
|
|
(104,449 |
) |
|
|
|
|
(189 |
) |
|
|
|
|
(579 |
) |
|
Other changes in fair value |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
14 |
|
|
Fair value on January 1, 2009 |
|
|
|
102,993 |
|
|
|
|
981 |
|
|
|
|
1,471 |
|
Addition of mortgage servicing rights |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
11 |
|
Reductions due to loan payments |
|
|
|
(16,646 |
) |
|
|
|
|
(98 |
) |
|
|
|
|
(314 |
) |
|
Reclassification from/(to) trading securities |
|
|
|
11,853 |
|
|
|
|
- |
|
|
|
|
- |
|
Changes in fair value due to: |
|
|
|
|
|
|
Changes in valuation model inputs or assumptions |
|
|
|
7,668 |
|
|
|
|
45 |
|
|
|
|
- |
|
|
Fair value on December 31, 2009 |
|
|
$ |
|
105,868 |
|
|
|
$ |
|
928 |
|
|
|
$ |
|
1,168 |
|
|
Servicing, late, and other ancillary fees recognized within mortgage banking income were $63.9 million, $86.6 million and $85.2 million for the years ended December 31, 2009, 2008, and 2007, respectively, related to securitization activity. Servicing, late, and other ancillary fees recognized within all other income
and commissions were $.9 million, $1.2 million and $1.5 million for the years ended December 31, 2009, 2008, and 2007, respectively, related to securitization activity.
Following is a summary of changes in capitalized MSR related to loan sale activity as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
First Liens |
|
Second Liens |
|
HELOC |
|
Fair value on January 1, 2008 |
|
|
$ |
|
892,104 |
|
|
|
$ |
|
24,403 |
|
|
|
$ |
|
9,312 |
|
Addition of mortgage servicing rights |
|
|
|
241,750 |
|
|
|
|
- |
|
|
|
|
1,001 |
|
Reductions due to loan payments |
|
|
|
(86,127 |
) |
|
|
|
|
(6,226 |
) |
|
|
|
|
(1,701 |
) |
|
Reductions due to sale |
|
|
|
(485,759 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Changes in fair value due to: |
|
|
|
|
|
|
Changes in valuation model inputs or assumptions |
|
|
|
(311,353 |
) |
|
|
|
|
(5,607 |
) |
|
|
|
|
(2,987 |
) |
|
Other changes in fair value |
|
|
|
789 |
|
|
|
|
6 |
|
|
|
|
1,794 |
|
|
Fair value on January 1, 2009 |
|
|
|
251,404 |
|
|
|
|
12,576 |
|
|
|
|
7,419 |
|
Addition of mortgage servicing rights |
|
|
|
189 |
|
|
|
|
- |
|
|
|
|
- |
|
Reductions due to loan payments |
|
|
|
(41,811 |
) |
|
|
|
|
(4,679 |
) |
|
|
|
|
(2,505 |
) |
|
Reductions due to sale |
|
|
|
(77,591 |
) |
|
|
|
|
(8,134 |
) |
|
|
|
|
(1,549 |
) |
|
Reclassification from/(to) trading securities |
|
|
|
(776 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Changes in fair value due to: |
|
|
|
|
|
|
Changes in valuation model inputs or assumptions |
|
|
|
60,262 |
|
|
|
|
- |
|
|
|
|
- |
|
Other changes in fair value |
|
|
|
(1,430 |
) |
|
|
|
|
483 |
|
|
|
|
789 |
|
|
Fair value on December 31, 2009 |
|
|
$ |
|
190,247 |
|
|
|
$ |
|
246 |
|
|
|
$ |
|
4,154 |
|
|
Servicing, late, and other ancillary fees recognized within mortgage banking income were $56.5 million, $146.0 million and $227.6 million for the years ended December 31, 2009, 2008, and 2007, respectively, related to loan sale activity. Servicing, late, and other ancillary fees recognized within all other income
and commissions were $11.4 million, $15.7 million and $17.3 million for the years ended December 31, 2009, 2008, and 2007, respectively, related to loan sale activity.
95
FIRST HORIZON NATIONAL CORPORATION
Note 6 q Mortgage Servicing Rights (continued)
The total value of MSR declined $74.2 million during 2009. In 2009, FHN sold the rights to service $14.2 billion of loans, which resulted in an $87.3 million reduction in MSR attributable to loan sales. The balance decreased an additional $66.1 million due to loan payments. An increase in mortgage rates during
the year led to a decline in assumed prepayment speeds and resulted in an increase in value of $67.8 million.
In 2008, FHN sold the rights to service $51.8 billion of first lien loans, which resulted in a $485.8 million reduction in MSR attributable to loan sales. Included in this change is the third quarter 2008 sale of $19.1 billion of servicing included in the divestiture of certain banking operations. Changes in assumptions
resulted in a decrease in MSR values as interest rate declines increased prepayment assumptions.
FHN services a portfolio of mortgage loans related to transfers performed by other parties utilizing QSPEs. FHNs servicing assets represent its sole interest in these transactions. The total MSR recognized by FHN related to these transactions was $7.0 million and $27.1 million at December 31, 2009 and 2008,
respectively. The aggregate principal balance serviced by FHN for these transactions was $.9 billion and $3.3 billion at December 31, 2009 and 2008, respectively. FHN has no obligation to provide financial support and has not provided any form of support to the related trusts. The MSR recognized by FHN has
been included in the first lien mortgage loans column within the rollforward of MSR resulting from loan sales activity.
As of December 31, 2009, FHN had transferred $39.7 million of MSR to third parties in transactions that did not qualify for sales treatment due to certain recourse provisions that were included within the sale agreements. These MSR are included within the first liens mortgage loans column within the rollforward of
MSR resulting from loan sales activity. The proceeds from these transfers have been recognized within other short-term borrowings and commercial paper in the Consolidated Statements of Condition as of December 31, 2009 and 2008.
96
FIRST HORIZON NATIONAL CORPORATION
Note 7 q Intangible Assets
The following is a summary of intangible assets, net of accumulated amortization, included in the Consolidated Statements of Condition:
|
|
|
|
|
(Dollars in thousands) |
|
Goodwill |
|
Other Intangible Assets (a) |
|
December 31, 2006 |
|
|
$ |
|
275,582 |
|
|
|
$ |
|
64,530 |
|
Amortization expense |
|
|
|
- |
|
|
|
|
(10,959 |
) |
|
Impairment (b) |
|
|
|
(84,084 |
) |
|
|
|
|
(990 |
) |
|
Divestitures |
|
|
|
(3,924 |
) |
|
|
|
|
(563 |
) |
|
Additions |
|
|
|
4,834 |
|
|
|
|
4,889 |
|
|
December 31, 2007 |
|
|
$ |
|
192,408 |
|
|
|
$ |
|
56,907 |
|
|
Amortization expense |
|
|
|
- |
|
|
|
|
(8,229 |
) |
|
Impairment |
|
|
|
- |
|
|
|
|
(4,034 |
) |
|
Divestitures |
|
|
|
- |
|
|
|
|
(32 |
) |
|
Additions |
|
|
|
- |
|
|
|
|
470 |
|
|
December 31, 2008 |
|
|
$ |
|
192,408 |
|
|
|
$ |
|
45,082 |
|
|
Amortization expense |
|
|
|
- |
|
|
|
|
(6,017 |
) |
|
Impairment (b) (c) |
|
|
|
(16,591 |
) |
|
|
|
|
(341 |
) |
|
Divestitures (c) |
|
|
|
(10,289 |
) |
|
|
|
|
(815 |
) |
|
Additions |
|
|
|
- |
|
|
|
|
347 |
|
|
December 31, 2009 |
|
|
$ |
|
165,528 |
|
|
|
$ |
|
38,256 |
|
|
|
(a) |
|
|
|
Represents customer lists, acquired contracts, premium on purchased deposits, and covenants not to compete. |
|
(b) |
|
|
|
See Note 26 Restructuring, Repositioning, and Efficiency for further details related to goodwill impairments. |
|
(c) |
|
|
|
See Note 2 Acquisitions/Divestitures for further details regarding goodwill included within divestitures.
|
The gross carrying amount of other intangible assets subject to amortization is $125.6 million on December 31, 2009, net of $87.3 million of accumulated amortization. Estimated aggregate amortization expense is expected to be $5.5 million, $5.3 million, $4.2 million, $3.9 million, and $3.6 million for the twelve-
month periods of 2010, 2011, 2012, 2013, and 2014, respectively.
In 2009, FHNs Capital Markets segment incurred pre-tax goodwill impairments of $14.3 million related to the agreement to sell FTN ECM. Because the agreement to sell FTN ECM failed to close in 2010 and FHN has exited the business, FHN will recognize an additional $3.3 million goodwill impairment in first
quarter 2010. In connection with the divestiture of the Atlanta insurance business and FERP, FHN recognized goodwill write-offs of $8.0 million and $2.3 million, respectively, which are included in losses on divestitures on the Consolidated Statements of Income. As a result of the closure of the remaining Atlanta
insurance business that was excluded from the sale, the Regional Banking segment incurred an additional goodwill impairment of $2.3 million. FHN also recognized $.3 million of other intangible impairments related to customer lists, $.8 million of write-offs related to disposals, and additions of $.3 million.
In 2008, FHN recognized $4.0 million of intangible impairments. The impairments were related to noncompete agreements associated with the divestiture of certain mortgage banking operations and the write-off of state banking licenses due to FHNs focus on the Tennessee regional banking market.
In 2007, FHN recorded $13.0 million of goodwill impairment and a write-down of $.9 million of core deposit intangibles primarily related to the sale of certain First Horizon Bank branches. Following an updated valuation based on strategic cash flow projections and market-to-book values, FHN incurred a fourth
quarter 2007 non-cash pre-tax impairment charge of $71.1 million for the write-down of all goodwill associated with the Mortgage Banking business segment. This represented the entire cumulative goodwill recognized by this segment. FHN engaged an independent valuation firm to assist in computing the fair value
estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value for the Mortgage Banking business segment. The valuation methodologies utilized included a comparison of the average price to book value
of comparable businesses and a discounted cash flow valuation technique.
97
FIRST HORIZON NATIONAL CORPORATION
Note 7 q Intangible Assets (continued)
The following is a summary of gross goodwill and accumulated impairment losses and write-offs detailed by reportable segments included in the Consolidated Statements of Condition through December 31, 2006:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Mortgage Banking |
|
Regional Banking |
|
Capital Markets |
|
Total |
|
Gross goodwill |
|
|
$ |
|
66,240 |
|
|
|
$ |
|
147,514 |
|
|
|
$ |
|
115,066 |
|
|
|
$ |
|
328,820 |
|
Accumulated impairments |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Accumulated divestiture related write-offs |
|
|
|
- |
|
|
|
|
(53,238 |
) |
|
|
|
|
- |
|
|
|
|
(53,238 |
) |
|
|
December 31, 2006 |
|
|
$ |
|
66,240 |
|
|
|
$ |
|
94,276 |
|
|
|
$ |
|
115,066 |
|
|
|
$ |
|
275,582 |
|
|
There is no goodwill associated with the National Specialty Lending and Corporate segments.
The following is a summary of goodwill detailed by reportable segments for the three years ended December 31:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Mortgage Banking |
|
Regional Banking |
|
Capital Markets |
|
Total |
|
December 31, 2006 |
|
|
$ |
|
66,240 |
|
|
|
$ |
|
94,276 |
|
|
|
$ |
|
115,066 |
|
|
|
$ |
|
275,582 |
|
Impairment |
|
|
|
(71,074 |
) |
|
|
|
|
(13,010 |
) |
|
|
|
|
- |
|
|
|
|
(84,084 |
) |
|
Divestitures |
|
|
|
- |
|
|
|
|
(3,924 |
) |
|
|
|
|
- |
|
|
|
|
(3,924 |
) |
|
Additions |
|
|
|
4,834 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
4,834 |
|
|
December 31, 2007 |
|
|
$ |
|
- |
|
|
|
$ |
|
77,342 |
|
|
|
$ |
|
115,066 |
|
|
|
$ |
|
192,408 |
|
|
December 31, 2008 |
|
|
$ |
|
- |
|
|
|
$ |
|
77,342 |
|
|
|
$ |
|
115,066 |
|
|
|
$ |
|
192,408 |
|
Impairment |
|
|
|
- |
|
|
|
|
(2,294 |
) |
|
|
|
|
(14,297 |
) |
|
|
|
|
(16,591 |
) |
|
Divestitures |
|
|
|
- |
|
|
|
|
(10,289 |
) |
|
|
|
|
- |
|
|
|
|
(10,289 |
) |
|
|
December 31, 2009 |
|
|
$ |
|
- |
|
|
|
$ |
|
64,759 |
|
|
|
$ |
|
100,769 |
|
|
|
$ |
|
165,528 |
|
|
There is no goodwill associated with the National Specialty Lending and Corporate segments.
The following is a summary of gross goodwill and accumulated impairment losses and write-offs detailed by reportable segments included in the Consolidated Statements of Condition through December 31, 2009:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Mortgage Banking |
|
Regional Banking |
|
Capital Markets |
|
Total |
|
Gross goodwill |
|
|
$ |
|
71,074 |
|
|
|
$ |
|
147,514 |
|
|
|
$ |
|
115,066 |
|
|
|
$ |
|
333,654 |
|
Accumulated impairments |
|
|
|
(71,074 |
) |
|
|
|
|
(15,304 |
) |
|
|
|
|
(14,297 |
) |
|
|
|
|
(100,675 |
) |
|
Accumulated divestiture related write-offs |
|
|
|
- |
|
|
|
|
(67,451 |
) |
|
|
|
|
- |
|
|
|
|
(67,451 |
) |
|
|
December 31, 2009 |
|
|
$ |
|
- |
|
|
|
$ |
|
64,759 |
|
|
|
$ |
|
100,769 |
|
|
|
$ |
|
165,528 |
|
|
There is no goodwill associated with the National Specialty Lending and Corporate segments.
Note 8 q Time Deposit Maturities
Following is a table of maturities for time deposits outstanding on December 31, 2009, which include Certificates of deposit under $100,000 and other time and Certificates of deposit $100,000 and more. Certificates of deposit $100,000 and more totaled $.6 billion on December 31, 2009. Time deposits are
included in Interest-bearing deposits on the Consolidated Statements of Condition.
|
|
|
(Dollars in thousands) |
|
|
|
2010 |
|
|
$ |
|
1,572,729 |
|
2011 |
|
|
|
300,612 |
|
2012 |
|
|
|
173,327 |
|
2013 |
|
|
|
139,382 |
|
2014 |
|
|
|
188,706 |
|
2015 and after |
|
|
|
81,180 |
|
|
Total |
|
|
$ |
|
2,455,936 |
|
|
98
FIRST HORIZON NATIONAL CORPORATION
Note 9 q Short-Term Borrowings
Short-term borrowings include federal funds purchased and securities sold under agreements to repurchase, commercial paper, trading liabilities, and other borrowed funds.
Federal funds purchased and securities sold under agreements to repurchase and commercial paper generally have maturities of less than 90 days. Trading liabilities, which represent short positions in securities, are generally held for less than 90 days. Other short-term borrowings have original maturities of one
year or less. On December 31, 2009, capital markets trading securities with a fair value of $5.5 million were pledged to secure other short-term borrowings.
The detail of these borrowings for the years 2009, 2008, and 2007 is presented in the following table:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase |
|
Commercial Paper |
|
Trading Liabilities |
|
Other Short-term Borrowings (a) |
|
2009 |
|
|
|
|
|
|
|
|
Average balance |
|
|
$ |
|
2,486,296 |
|
|
|
$ |
|
159 |
|
|
|
$ |
|
536,161 |
|
|
|
$ |
|
2,662,830 |
|
Year-end balance |
|
|
|
2,874,353 |
|
|
|
|
- |
|
|
|
|
293,387 |
|
|
|
|
761,758 |
|
Maximum month-end outstanding |
|
|
|
2,874,353 |
|
|
|
|
310 |
|
|
|
|
565,858 |
|
|
|
|
4,734,408 |
|
Average rate for the year |
|
|
|
.21 |
% |
|
|
|
|
1.57 |
% |
|
|
|
|
3.89 |
% |
|
|
|
|
.29 |
% |
|
Average rate at year-end |
|
|
|
.17 |
|
|
|
|
- |
|
|
|
|
4.13 |
|
|
|
|
.17 |
|
|
2008 |
|
|
|
|
|
|
|
|
Average balance |
|
|
$ |
|
3,409,496 |
|
|
|
$ |
|
2,325 |
|
|
|
$ |
|
702,407 |
|
|
|
$ |
|
5,136,144 |
|
Year-end balance |
|
|
|
1,751,079 |
|
|
|
|
3,130 |
|
|
|
|
359,502 |
|
|
|
|
4,276,559 |
|
Maximum month-end outstanding |
|
|
|
6,433,001 |
|
|
|
|
3,355 |
|
|
|
|
1,503,348 |
|
|
|
|
6,461,018 |
|
Average rate for the year |
|
|
|
2.04 |
% |
|
|
|
|
2.79 |
% |
|
|
|
|
4.73 |
% |
|
|
|
|
2.33 |
% |
|
Average rate at year-end |
|
|
|
.25 |
|
|
|
|
.51 |
|
|
|
|
4.82 |
|
|
|
|
.79 |
|
|
2007 |
|
|
|
|
|
|
|
|
Average balance |
|
|
$ |
|
4,853,599 |
|
|
|
$ |
|
2,080 |
|
|
|
$ |
|
950,555 |
|
|
|
$ |
|
1,343,572 |
|
Year-end balance |
|
|
|
4,829,597 |
|
|
|
|
2,076 |
|
|
|
|
556,144 |
|
|
|
|
3,420,919 |
|
Maximum month-end outstanding |
|
|
|
6,167,114 |
|
|
|
|
2,659 |
|
|
|
|
1,360,764 |
|
|
|
|
3,420,919 |
|
Average rate for the year |
|
|
|
4.72 |
% |
|
|
|
|
3.76 |
% |
|
|
|
|
5.42 |
% |
|
|
|
|
4.83 |
% |
|
Average rate at year-end |
|
|
|
3.23 |
|
|
|
|
3.66 |
|
|
|
|
5.26 |
|
|
|
|
4.35 |
|
|
|
(a) |
|
|
|
Primarily includes borrowings from the FHLB and Federal Reserve Term Auction Facility.
|
99
FIRST HORIZON NATIONAL CORPORATION
Note 10 q Long-Term Debt
The following table presents information pertaining to long-term debt (debt with original maturities greater than one year) for FHN and its subsidiaries on December 31:
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
First Tennessee Bank National Association: |
|
|
|
|
Subordinated notes (qualifies for total capital under the risk-based capital guidelines) |
|
|
|
|
Matures on January 15, 2015 5.05% |
|
|
$ |
|
432,003 |
|
|
|
$ |
|
454,055 |
|
Matures on May 15, 2013 4.625% |
|
|
|
272,120 |
|
|
|
|
280,801 |
|
Matures on April 1, 2016 5.65% |
|
|
|
277,214 |
|
|
|
|
297,652 |
|
Bank notes (a) |
|
|
|
697,453 |
|
|
|
|
2,471,164 |
|
Other collateralized borrowings Matures on December 22, 2037 0.55% on December 31, 2009 and 2.30% on December 31, 2008 (b) |
|
|
|
50,147 |
|
|
|
|
48,855 |
|
Federal Home Loan Bank borrowings (c) |
|
|
|
3,022 |
|
|
|
|
3,354 |
|
Trust preferred debt (d) |
|
|
|
30,500 |
|
|
|
|
30,500 |
|
First Horizon National Corporation: |
|
|
|
|
Subordinated capital notes (qualifies for total capital under the risk-based capital guidelines) |
|
|
|
|
Matures on May 15, 2013 4.50% |
|
|
|
108,875 |
|
|
|
|
112,243 |
|
Subordinated notes (e) |
|
|
|
|
Matures on January 6, 2027 8.07% |
|
|
|
109,697 |
|
|
|
|
107,765 |
|
Matures on April 15, 2034 6.30% |
|
|
|
214,102 |
|
|
|
|
219,274 |
|
FT Real Estate Securities Company, Inc.: |
|
|
|
|
Cumulative preferred stock (qualifies for total capital under the risk-based capital guidelines) |
|
|
|
|
Matures on March 31, 2031 9.50% |
|
|
|
45,557 |
|
|
|
|
45,489 |
|
First Horizon ABS Trust: |
|
|
|
|
Other collateralized borrowings (f) |
|
|
|
|
Matures on October 25, 2034 0.39% on December 31, 2009 and 0.60% on December 31, 2008 |
|
|
|
165,107 |
|
|
|
|
179,114 |
|
Matures on October 26, 2026 0.36% on December 31, 2009 and 0.57% on December 31, 2008 |
|
|
|
236,226 |
|
|
|
|
253,438 |
|
Matures on September 25, 2029 0.36% on December 31, 2009 and 0.57% on December 31, 2008 |
|
|
|
249,110 |
|
|
|
|
263,956 |
|
|
Total |
|
|
$ |
|
2,891,133 |
|
|
|
$ |
|
4,767,660 |
|
|
|
(a) |
|
|
|
The bank notes were issued with variable interest rates and have remaining terms of 1 to 2 years. These bank notes had weighted average interest rates of 0.45 percent and 2.58 percent on December 31, 2009 and 2008, respectively. |
|
(b) |
|
|
|
Secured by $50.1 million of trust preferred loans. |
|
(c) |
|
|
|
The Federal Home Loan Bank borrowings were issued with fixed interest rates and have remaining terms of 1 to 20 years. These borrowings had weighted average interest rates of 2.39 percent and 2.70 percent on December 31, 2009 and 2008, respectively. |
|
(d) |
|
|
|
Trust preferred notes have a weighted average interest rate of 6.04 percent and 6.53 percent as of December 31, 2009 and 2008, respectively. |
|
(e) |
|
|
|
See Note 11 Subordinated Debentures for further details. |
|
(f) |
|
|
|
Secured by $654.6 million of retail real estate residential loans. See Note 23 - Loan Sales and Securitizations for further details.
|
Annual principal repayment requirements as of December 31, 2009, are as follows:
|
|
|
(Dollars in thousands) |
|
|
|
2010 |
|
|
$ |
|
148,651 |
|
2011 |
|
|
|
549,101 |
|
2012 |
|
|
|
151 |
|
2013 |
|
|
|
350,151 |
|
2014 |
|
|
|
151 |
|
2015 and after |
|
|
|
1,739,638 |
|
|
100
FIRST HORIZON NATIONAL CORPORATION
Note 10 q Long-Term Debt (continued)
All subordinated notes are unsecured and are subordinate to other present and future senior indebtedness. FTBNAs subordinated notes and FHNs subordinated capital notes qualify as Tier 2 capital under the risk-based capital guidelines. In February 2005, FTBNA established a bank note program providing
additional liquidity of $5.0 billion. This bank note program provided FTBNA with a facility under which it could continuously issue and offer short- and medium-term unsecured notes. On December 31, 2009, $1.6 billion was available under the terms of the bank note program. During 2008 and 2009, market and
other conditions have been such that FTBNA has not been able to affordably utilize the bank note program, and instead has obtained less credit-sensitive sources of funding including secured sources such as Federal Home Loan Bank borrowings and the Federal Reserve Term Auction Facility. FTBNA expects that
its inability to use the bank note program will continue for some time to come, and cannot predict when that inability will end.
Note 11 q Guaranteed Preferred Beneficial Interests in First Horizons Junior Subordinated Debentures
On December 30, 1996, FHN, through its underwriter, sold $100 million of capital securities. First Tennessee Capital I (Capital I), a Delaware business trust wholly owned by FHN, issued $100 million of Capital Securities, Series A at 8.07 percent. The proceeds were loaned to FHN as junior subordinated debt.
FHN has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital Is obligations with respect to the capital securities. The sole asset of Capital I is $103 million of junior subordinated debentures issued by FHN. These junior subordinated debentures also carry an interest rate of
8.07 percent. Both the capital securities of Capital I and the junior subordinated debentures of FHN will mature on January 6, 2027; however, FHN has the option to redeem both prior to maturity. The capital securities qualify as Tier 1 capital. The junior subordinated debentures are included in the Consolidated
Statements of Condition in Long-term debt (see Note 10 Long-Term Debt).
On March 29, 2004, FHN, through its underwriter, sold $200 million of capital securities. First Tennessee Capital II (Capital II), a Delaware business trust wholly owned by FHN, issued $200 million of Capital Securities, Series B at 6.30 percent. The proceeds were loaned to FHN as junior subordinated debt. FHN
has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital IIs obligations with respect to the capital securities. The sole asset of Capital II is $206 million of junior subordinated debentures issued by FHN. These junior subordinated debentures also carry an interest rate of 6.30
percent. Both the capital securities of Capital II and the junior subordinated debentures of FHN will mature on April 15, 2034; however, FHN has the option to redeem both prior to maturity. The capital securities qualify as Tier 1 capital. The junior subordinated debentures are included in the Consolidated
Statements of Condition in Long-term debt (see Note 10 Long-Term Debt).
Note 12 q Preferred Stock and Other Capital
FHN Preferred Stock and Warrant
On November 14, 2008, FHN issued and sold 866,540 preferred shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series CPP, along with a Warrant to purchase common stock. The issuance occurred in connection with, and is governed by, the Treasury Capital Purchase Program (Capital Purchase
Program) administered by the U.S. Treasury (UST) under the Troubled Asset Relief Program (TARP). The Preferred Shares have an annual 5 percent cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9 percent after five years. If a dividend payment is missed it is not a
default; however, dividends compound if they accrue in arrears. Preferred Shares have a liquidation preference of $1,000 per share plus accrued dividends. The Preferred Shares have no mandatory redemption date and are not subject to any sinking fund. The Preferred Shares carry certain restrictions. The
Preferred Shares have a senior rank and also provide limitations on certain compensation arrangements of executive officers along with the twenty most highly compensated employees. During the first three years following the issuance, FHN may not reinstate a cash dividend on its common shares nor purchase
equity shares without the approval of the UST, subject to certain limited exceptions. If preferred dividends are missed, FHN may not reinstate a cash dividend on its common shares to the extent preferred dividends remain unpaid. Generally, the Preferred Shares are non-voting. However,
101
FIRST HORIZON NATIONAL CORPORATION
Note 12 q Preferred Stock and Other Capital (continued)
should FHN fail to pay six quarterly dividends, the holder may elect two directors to FHNs Board of Directors until such dividends are paid. In connection with the issuance of the Preferred Shares, a Warrant to purchase 12,743,235 common shares was issued with an exercise price of $10.20 per share. The
Warrant is immediately exercisable and expires in ten years. The Warrant is subject to proportionate anti-dilution adjustment in the event of stock dividends or splits, among other things. As a result of the stock dividends distributed to date as of January 1, 2010, the Warrant was adjusted to cover 13,954,779
common shares at a purchase price of $9.315 per share.
The Preferred Shares and Warrant qualify as Tier 1 capital and are presented in permanent equity on the Consolidated Statements of Condition as of December 31, 2009, in the amounts of $798.7 million and $83.9 million, respectively. Proceeds received were allocated between the common stock warrant and
preferred shares based on their relative fair values. The fair value of the preferred shares was determined by calculating the present value of expected cash flows using a 9.40 percent discount rate. The fair value of the common stock warrant was determined using the Black Scholes Options Pricing Model. Both fair
value determinations assumed redemption prior to the increase in dividend rate on the five year anniversary of the issuance. The preferred shares discount is being amortized over the initial five-year period using the constant yield method. FHN is in the process of evaluating the proper time and correct process to
repay funds received from the preferred shares and common stock warrant issued to the UST.
Subsidiary Preferred Stock
On September 14, 2000, FT Real Estate Securities Company, Inc. (FTRESC), an indirect subsidiary of FHN, issued 50 shares of 9.50 percent Cumulative Preferred Stock, Class B (Class B Preferred Shares), with a liquidation preference of $1.0 million per share. An aggregate total of 47 Class B Preferred Shares
have been sold privately to nonaffiliates. These securities qualify as Tier 2 capital and are presented in the Consolidated Statements of Condition as Long-term debt. FTRESC is a real estate investment trust (REIT) established for the purpose of acquiring, holding, and managing real estate mortgage assets.
Dividends on the Class B Preferred Shares are cumulative and are payable semi-annually.
The Class B Preferred Shares are mandatorily redeemable on March 31, 2031, and redeemable at the discretion of FTRESC in the event that the Class B Preferred Shares cannot be accounted for as Tier 2 regulatory capital or there is more than an insubstantial risk that dividends paid with respect to the Class B
Preferred Shares will not be fully deductible for tax purposes. They are not subject to any sinking fund and are not convertible into any other securities of FTRESC, FHN or any of its subsidiaries. The shares are, however, automatically exchanged at the direction of the Office of the Comptroller of the Currency for
preferred stock of FTBNA, having substantially the same terms as the Class B Preferred Shares in the event FTBNA becomes undercapitalized, insolvent or in danger of becoming undercapitalized.
Effective January 1, 2009, FHN adopted the FASB Accounting Standards Codification Topic relating to Consolidation (ASC 810-10-45) which provides that noncontrolling interests should be presented as a separate component of equity rather than on a mezzanine level. In accordance with ASC 810-10-45, the
balance for noncontrolling interests associated with preferred stock previously issued by the following indirect, wholly-owned subsidiaries of FHN have been included in the equity section of the Consolidated Statements of Condition for all periods presented.
First Horizon Preferred Funding, LLC and First Horizon Preferred Funding II, LLC have each issued $1.0 million of Class B Units of preferred stock. On December 31, 2009, 2008, and 2007, the amount of Class B Preferred Shares and Units that are perpetual in nature that was recognized as Noncontrolling
interest on the Consolidated Statements of Condition was $.3 million, $.3 million, $.5 million, respectively. The remaining balance has been eliminated in consolidation.
On March 23, 2005, FTBNA issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (Class A Preferred Stock) with a liquidation preference of $1,000 per share. These securities qualify as Tier 1 capital. On December 31, 2009, 2008, and 2007, $294.8 million of Class A Preferred Stock was
recognized as Noncontrolling interest on the Consolidated Statements of Condition.
102
FIRST HORIZON NATIONAL CORPORATION
Note 12 q Preferred Stock and Other Capital (continued)
Due to the nature of the subsidiary preferred stock issued by First Horizon Preferred Funding, LLC, First Horizon Preferred Funding II, LLC, and FTBNA, all components of other comprehensive income/(loss) included in the Consolidated Statements of Equity have been attributed solely to FHN as the controlling
interest holder. The table below presents the amounts included in the Consolidated Statements of Income for the years ended December 31, 2009, 2008, and 2007, which are attributable to FHN as controlling interest holder for the following:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Net loss from continuing operations (a) |
|
|
$ |
|
(256,991 |
) |
|
|
|
$ |
|
(188,453 |
) |
|
|
|
$ |
|
(172,599 |
) |
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(12,846 |
) |
|
|
|
|
(3,534 |
) |
|
|
|
|
2,453 |
|
|
Net loss |
|
|
$ |
|
(269,837 |
) |
|
|
|
$ |
|
(191,987 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
|
|
(a) |
|
|
|
Net loss from continuing operations adjusted for net income attributable to the noncontrolling interest holder.
|
Note 13 q Regulatory Capital
FHN is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on FHNs financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of assets, liabilities, and certain derivatives as calculated under regulatory accounting practices must be met. Capital amounts and classification are
also subject to qualitative judgment by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require FHN to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to
average assets (leverage). Management believes, as of December 31, 2009, that FHN met all capital adequacy requirements to which it was subject.
The actual capital amounts and ratios of FHN and FTBNA are presented in the table below. In addition, FTBNA must also calculate its capital ratios after excluding financial subsidiaries as defined by the Gramm-Leach-Bliley Act of 1999. Based on this calculation, FTBNAs Total Capital, Tier 1 Capital, and Leverage
ratios were 19.64 percent, 15.16 percent, and 12.56 percent, respectively, on December 31, 2009, and were 18.21 percent, 13.87 percent, and 11.42 percent, respectively, on December 31, 2008.
103
FIRST HORIZON NATIONAL CORPORATION
Note 13 q Regulatory Capital (continued)
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
First Horizon National Corporation |
|
First Tennessee Bank National Association |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
On December 31, 2009: |
|
|
|
|
|
|
|
|
Actual: |
|
|
|
|
|
|
|
|
Total Capital |
|
|
$ |
|
4,691,010 |
|
|
|
|
21.92 |
% |
|
|
|
$ |
|
4,481,786 |
|
|
|
|
21.16 |
% |
|
Tier 1 Capital |
|
|
|
3,507,782 |
|
|
|
|
16.39 |
|
|
|
|
3,361,373 |
|
|
|
|
15.87 |
|
Leverage |
|
|
|
3,507,782 |
|
|
|
|
13.36 |
|
|
|
|
3,361,373 |
|
|
|
|
12.91 |
|
For Capital Adequacy Purposes: |
|
|
|
|
|
|
|
|
Total Capital |
|
|
|
1,712,033 |
≥ |
|
|
|
|
8.00 |
|
|
|
|
1,694,688 |
≥ |
|
|
|
|
8.00 |
|
Tier 1 Capital |
|
|
|
856,016 |
≥ |
|
|
|
|
4.00 |
|
|
|
|
847,344 |
≥ |
|
|
|
|
4.00 |
|
Leverage |
|
|
|
1,050,104 |
≥ |
|
|
|
|
4.00 |
|
|
|
|
1,041,090 |
≥ |
|
|
|
|
4.00 |
|
To Be Well Capitalized Under Prompt Corrective Action Provisions: |
|
|
|
|
|
|
|
|
Total Capital |
|
|
|
|
|
|
|
2,118,360 |
≥ |
|
|
|
|
10.00 |
|
Tier 1 Capital |
|
|
|
|
|
|
|
1,271,016 |
≥ |
|
|
|
|
6.00 |
|
Leverage |
|
|
|
|
|
|
|
1,301,362 |
≥ |
|
|
|
|
5.00 |
|
|
On December 31, 2008: |
|
|
|
|
|
|
|
|
Actual: |
|
|
|
|
|
|
|
|
Total Capital |
|
|
$ |
|
5,083,609 |
|
|
|
|
20.18 |
% |
|
|
|
$ |
|
4,794,737 |
|
|
|
|
19.21 |
% |
|
Tier 1 Capital |
|
|
|
3,784,152 |
|
|
|
|
15.03 |
|
|
|
|
3,578,078 |
|
|
|
|
14.34 |
|
Leverage |
|
|
|
3,784,152 |
|
|
|
|
12.22 |
|
|
|
|
3,578,078 |
|
|
|
|
11.64 |
|
For Capital Adequacy Purposes: |
|
|
|
|
|
|
|
|
Total Capital |
|
|
|
2,014,829 |
≥ |
|
|
|
|
8.00 |
|
|
|
|
1,996,781 |
≥ |
|
|
|
|
8.00 |
|
Tier 1 Capital |
|
|
|
1,007,415 |
≥ |
|
|
|
|
4.00 |
|
|
|
|
998,391 |
≥ |
|
|
|
|
4.00 |
|
Leverage |
|
|
|
1,238,942 |
≥ |
|
|
|
|
4.00 |
|
|
|
|
1,229,693 |
≥ |
|
|
|
|
4.00 |
|
To Be Well Capitalized Under Prompt Corrective Action Provisions: |
|
|
|
|
|
|
|
|
Total Capital |
|
|
|
|
|
|
|
2,495,976 |
≥ |
|
|
|
|
10.00 |
|
Tier 1 Capital |
|
|
|
|
|
|
|
1,497,586 |
≥ |
|
|
|
|
6.00 |
|
Leverage |
|
|
|
|
|
|
|
1,537,116 |
≥ |
|
|
|
|
5.00 |
|
|
104
FIRST HORIZON NATIONAL CORPORATION
Note 14 q Other Income and Other Expense
Following is detail of All other income and commissions and All other expense as presented in the Consolidated Statements of Income:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
All other income and commissions: |
|
|
|
|
|
|
Bankcard income |
|
|
|
20,161 |
|
|
|
|
22,081 |
|
|
|
|
24,874 |
|
Bank-owned life insurance |
|
|
|
19,744 |
|
|
|
|
25,143 |
|
|
|
|
25,172 |
|
Gains on repurchases of debt |
|
|
|
16,412 |
|
|
|
|
33,845 |
|
|
|
|
- |
|
Remittance processing |
|
|
|
11,765 |
|
|
|
|
12,953 |
|
|
|
|
13,451 |
|
Other service charges |
|
|
|
11,647 |
|
|
|
|
12,631 |
|
|
|
|
14,296 |
|
ATM interchange fees |
|
|
|
11,335 |
|
|
|
|
9,224 |
|
|
|
|
8,472 |
|
Reinsurance fees |
|
|
|
9,130 |
|
|
|
|
11,919 |
|
|
|
|
9,052 |
|
Deferred compensation (a) |
|
|
|
7,686 |
|
|
|
|
(22,901 |
) |
|
|
|
|
7,727 |
|
Electronic banking fees |
|
|
|
6,020 |
|
|
|
|
6,217 |
|
|
|
|
6,561 |
|
Letter of credit fees |
|
|
|
5,989 |
|
|
|
|
5,657 |
|
|
|
|
6,738 |
|
Gains/(losses) from loan sales and securitizations |
|
|
|
2,545 |
|
|
|
|
(8,625 |
) |
|
|
|
|
23,881 |
|
Federal flood certifications |
|
|
|
- |
|
|
|
|
3,869 |
|
|
|
|
5,212 |
|
Other (b) |
|
|
|
8,490 |
|
|
|
|
15,561 |
|
|
|
|
7,999 |
|
|
Total |
|
|
$ |
|
130,924 |
|
|
|
$ |
|
127,574 |
|
|
|
$ |
|
153,435 |
|
|
All other expense: |
|
|
|
|
|
|
Advertising and public relations |
|
|
|
22,074 |
|
|
|
|
32,738 |
|
|
|
|
41,840 |
|
Low income housing expense |
|
|
|
22,000 |
|
|
|
|
18,734 |
|
|
|
|
20,922 |
|
Other insurance and taxes |
|
|
|
12,388 |
|
|
|
|
8,705 |
|
|
|
|
10,372 |
|
Travel and entertainment |
|
|
|
9,547 |
|
|
|
|
15,137 |
|
|
|
|
23,295 |
|
Customer relations |
|
|
|
7,819 |
|
|
|
|
8,872 |
|
|
|
|
9,775 |
|
Loan insurance expense |
|
|
|
7,811 |
|
|
|
|
5,270 |
|
|
|
|
4,610 |
|
Employee training and dues |
|
|
|
5,327 |
|
|
|
|
6,198 |
|
|
|
|
6,569 |
|
Fed service fees |
|
|
|
5,078 |
|
|
|
|
7,053 |
|
|
|
|
6,047 |
|
Bank examinations costs |
|
|
|
4,884 |
|
|
|
|
4,144 |
|
|
|
|
4,504 |
|
Supplies |
|
|
|
4,661 |
|
|
|
|
10,586 |
|
|
|
|
13,599 |
|
Complimentary check expense |
|
|
|
3,529 |
|
|
|
|
4,776 |
|
|
|
|
5,058 |
|
Other (c)(d) |
|
|
|
79,171 |
|
|
|
|
51,923 |
|
|
|
|
120,895 |
|
|
Total |
|
|
$ |
|
184,289 |
|
|
|
$ |
|
174,136 |
|
|
|
$ |
|
267,486 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
Deferred compensation market value adjustments are mirrored by adjustments to employee compensation, incentives, and benefits expense. |
|
(b) |
|
|
|
2009 and 2008 includes charges of $22.0 million and $15.5 million, respectively, to increase reserves for estimate to repurchase HELOC and second liens from prior loan sales. |
|
(c) |
|
|
|
Includes a portion of net charges for restructuring, repositioning, and efficiency initiatives (Note 26). |
|
(d) |
|
|
|
2009 includes a $7.0 million reversal of expense related to Visa litigation matters compared with a $30.0 million reversal in 2008.
|
105
FIRST HORIZON NATIONAL CORPORATION
Note 15 q Components of Other Comprehensive Income/(loss)
Following is detail of Accumulated other comprehensive income/(loss) as presented in the Consolidated Statements of Condition:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Before-Tax Amount |
|
Tax Benefit/ (Expense) |
|
Accumulated Other Comprehensive Income/(Loss) |
|
December 31, 2006 |
|
|
$ |
|
(46,569 |
) |
|
|
|
$ |
|
16,365 |
|
|
|
$ |
|
(72,448 |
) |
|
Effects of changing pension plan measurement date pursuant to ASC 715 |
|
|
|
|
|
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) for October 1 - December 31 |
|
|
|
2,204 |
|
|
|
|
(838 |
) |
|
|
|
|
1,366 |
|
Additional actuarial gain/(loss) for October 1 December 31 |
|
|
|
11,419 |
|
|
|
|
(4,475 |
) |
|
|
|
|
6,944 |
|
|
|
|
Beginning balance, as adjusted |
|
|
|
13,623 |
|
|
|
|
(5,313 |
) |
|
|
|
|
(64,138 |
) |
|
Other comprehensive income: |
|
|
|
|
|
|
Unrealized market adjustments on cash flow hedge |
|
|
|
(551 |
) |
|
|
|
|
207 |
|
|
|
|
(344 |
) |
|
Unrealized market adjustments on securities available for sale |
|
|
|
21,240 |
|
|
|
|
(8,263 |
) |
|
|
|
|
12,977 |
|
Adjustment for net gains/(losses) included in net income |
|
|
|
1,183 |
|
|
|
|
(460 |
) |
|
|
|
|
723 |
|
Pension and postretirement plans: |
|
|
|
|
|
|
Prior service cost arising during period |
|
|
|
(152 |
) |
|
|
|
|
57 |
|
|
|
|
(95 |
) |
|
Net actuarial gain/(loss) arising during period |
|
|
|
(4,164 |
) |
|
|
|
|
1,880 |
|
|
|
|
(2,284 |
) |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost |
|
|
|
8,119 |
|
|
|
|
(3,059 |
) |
|
|
|
|
5,060 |
|
|
|
|
December 31, 2007 |
|
|
$ |
|
25,675 |
|
|
|
$ |
|
(9,638 |
) |
|
|
|
$ |
|
(48,101 |
) |
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
Unrealized market adjustments on cash flow hedge |
|
|
|
(10 |
) |
|
|
|
|
4 |
|
|
|
|
(6 |
) |
|
Unrealized market adjustments on securities available for sale |
|
|
|
35,863 |
|
|
|
|
(13,882 |
) |
|
|
|
|
21,981 |
|
Adjustment for net gains/(losses) included in net income |
|
|
|
(210 |
) |
|
|
|
|
81 |
|
|
|
|
(129 |
) |
|
Pension and postretirement plans: |
|
|
|
|
|
|
Prior service cost arising during period |
|
|
|
(59 |
) |
|
|
|
|
22 |
|
|
|
|
(37 |
) |
|
Net actuarial gain/(loss) arising during period |
|
|
|
(208,158 |
) |
|
|
|
|
80,198 |
|
|
|
|
(127,960 |
) |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost |
|
|
|
3,913 |
|
|
|
|
(1,492 |
) |
|
|
|
|
2,421 |
|
|
|
|
December 31, 2008 |
|
|
$ |
|
(168,661 |
) |
|
|
|
$ |
|
64,931 |
|
|
|
$ |
|
(151,831 |
) |
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
Unrealized market adjustments on securities available for sale |
|
|
|
34,759 |
|
|
|
|
(12,145 |
) |
|
|
|
|
22,614 |
|
Pension and postretirement plans: |
|
|
|
|
|
|
Prior service cost arising during period |
|
|
|
17,088 |
|
|
|
|
(6,259 |
) |
|
|
|
|
10,829 |
|
Net actuarial gain/(loss) arising during period (a) |
|
|
|
6,024 |
|
|
|
|
(2,483 |
) |
|
|
|
|
3,541 |
|
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost |
|
|
|
1,007 |
|
|
|
|
(369 |
) |
|
|
|
|
638 |
|
|
|
|
December 31, 2009 |
|
|
$ |
|
58,878 |
|
|
|
$ |
|
(21,256 |
) |
|
|
|
$ |
|
(114,209 |
) |
|
|
|
|
|
(a) |
|
|
|
Includes a positive, after-tax effect of $18.3 million due to a curtailment. See Note 19 - Savings, Pension, and Other Employee Benefits.
|
106
FIRST HORIZON NATIONAL CORPORATION
Note 16 q Income Taxes
The components of income tax expense/(benefit) are as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Current: |
|
|
|
|
|
|
Federal |
|
|
$ |
|
(7,593 |
) |
|
|
|
$ |
|
240,273 |
|
|
|
$ |
|
74,281 |
|
State |
|
|
|
6,548 |
|
|
|
|
16,752 |
|
|
|
|
1,104 |
|
Deferred: |
|
|
|
|
|
|
Federal |
|
|
|
(153,902 |
) |
|
|
|
|
(373,335 |
) |
|
|
|
|
(178,879 |
) |
|
State |
|
|
|
(19,998 |
) |
|
|
|
|
(38,095 |
) |
|
|
|
|
(36,415 |
) |
|
|
Total |
|
|
$ |
|
(174,945 |
) |
|
|
|
$ |
|
(154,405 |
) |
|
|
|
$ |
|
(139,909 |
) |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
The effective tax rates for 2009, 2008, and 2007 were 41.60 percent, 46.95 percent, and 47.64 percent, respectively. Income tax expense differed from the amounts computed by applying the statutory federal income tax rate to income before income taxes because of the following:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Federal income tax rate |
|
35% |
|
35% |
|
35% |
|
Tax computed at statutory rate |
|
|
$ |
|
(147,187 |
) |
|
|
|
$ |
|
(115,095 |
) |
|
|
|
$ |
|
(102,786 |
) |
|
Increase/(decrease) resulting from: |
|
|
|
|
|
|
State income taxes |
|
|
|
(8,743 |
) |
|
|
|
|
(13,864 |
) |
|
|
|
|
(22,535 |
) |
|
Tax credits |
|
|
|
(22,312 |
) |
|
|
|
|
(19,064 |
) |
|
|
|
|
(20,332 |
) |
|
Goodwill |
|
|
|
3,205 |
|
|
|
|
- |
|
|
|
|
20,058 |
|
Other |
|
|
|
92 |
|
|
|
|
(6,382 |
) |
|
|
|
|
(14,314 |
) |
|
|
Total |
|
|
$ |
|
(174,945 |
) |
|
|
|
$ |
|
(154,405 |
) |
|
|
|
$ |
|
(139,909 |
) |
|
|
A deferred tax asset (DTA) or deferred tax liability (DTL) is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to
future years, to these temporary differences. In order to support the recognition of the DTA, FHNs management must believe that the realization of the DTA is more likely than not.
FHN evaluates the likelihood of realization of the $414 million net DTA based on both positive and negative evidence available at the time. FHNs three-year cumulative loss position at December 31, 2009, is significant negative evidence in determining whether the realizability of the DTA is more likely than not.
However, FHN believes that the negative evidence of the three-year cumulative loss is overcome by sufficient positive evidence that the DTA will ultimately be realized. The positive evidence includes several different factors. First, a significant amount of the cumulative losses occurred in businesses that FHN has
exited or is in the process of exiting. Secondly, FHN forecasts substantially more taxable income in the carryforward period, exclusive of tax planning strategies, even under very conservative assumptions. Additionally, FHN has sufficient carryback positions, reversing DTL, and potential tax planning strategies to fully
realize its DTA. FHN believes that it will realize the net DTA within a significantly shorter period of time than the twenty year carryforward period allowed under the tax rules. Based on current analysis, FHN believes that its ability to realize the recognized $414 million net DTA is more likely than not. This assertion
could change should FHN experience greater losses in the near-future than management currently anticipates.
107
FIRST HORIZON NATIONAL CORPORATION
Note 16 q Income Taxes (continued)
Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2009 and 2008, were as follows:
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Deferred tax assets: |
|
|
|
|
Loss reserves |
|
|
$ |
|
410,972 |
|
|
|
$ |
|
335,171 |
|
Employee benefits |
|
|
|
95,061 |
|
|
|
|
115,292 |
|
Accrued expenses |
|
|
|
22,060 |
|
|
|
|
27,054 |
|
Other |
|
|
|
53,933 |
|
|
|
|
16,148 |
|
|
Gross deferred tax assets |
|
|
|
582,026 |
|
|
|
|
493,665 |
|
Valuation allowance |
|
|
|
- |
|
|
|
|
- |
|
|
Deferred tax assets after valuation allowances |
|
|
$ |
|
582,026 |
|
|
|
$ |
|
493,665 |
|
|
Deferred tax liabilities: |
|
|
|
|
Capitalized mortgage servicing rights |
|
|
$ |
|
58,597 |
|
|
|
$ |
|
134,210 |
|
Asset securitizations |
|
|
|
- |
|
|
|
|
12,976 |
|
Depreciation and amortization |
|
|
|
15,892 |
|
|
|
|
20,817 |
|
Federal Home Loan Bank stock |
|
|
|
17,094 |
|
|
|
|
17,092 |
|
Deferred fees and expenses |
|
|
|
- |
|
|
|
|
8,835 |
|
Investment in debt securities (ASC 320) |
|
|
|
41,335 |
|
|
|
|
26,938 |
|
Other intangible assets |
|
|
|
19,671 |
|
|
|
|
21,870 |
|
Other |
|
|
|
15,515 |
|
|
|
|
- |
|
|
Gross deferred tax liabilities |
|
|
|
168,104 |
|
|
|
|
242,738 |
|
|
Net deferred tax asset |
|
|
$ |
|
413,922 |
|
|
|
$ |
|
250,927 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation. |
|
|
|
|
The total balance of unrecognized tax benefits at December 31, 2009, was $30.0 million. The rollforward of unrecognized tax benefits follows:
|
|
|
(Dollars in thousands) |
|
|
|
Balance at January 1, 2009 |
|
|
$ |
|
31,108 |
|
Increases related to prior year tax positions |
|
|
|
2,086 |
|
Increases related to current year tax positions |
|
|
|
500 |
|
Lapse of statute |
|
|
|
(3,690 |
) |
|
|
Balance at December 31, 2009 |
|
|
$ |
|
30,004 |
|
|
108
FIRST HORIZON NATIONAL CORPORATION
Note 17 q Earnings per Share
The following tables provide a reconciliation of the numerators used in calculating earnings/(loss) per share attributable to common shareholders:
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2009 |
|
2008 |
|
2007 |
|
Loss from continuing operations |
|
|
$ |
|
(245,589 |
) |
|
|
|
$ |
|
(174,437 |
) |
|
|
|
$ |
|
(153,764 |
) |
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(12,846 |
) |
|
|
|
|
(3,534 |
) |
|
|
|
|
2,453 |
|
|
Net loss |
|
|
$ |
|
(258,435 |
) |
|
|
|
$ |
|
(177,971 |
) |
|
|
|
$ |
|
(151,311 |
) |
|
Net income attributable to noncontrolling interest |
|
|
|
11,402 |
|
|
|
|
14,016 |
|
|
|
|
18,835 |
|
|
Net loss attributable to controlling interest |
|
|
$ |
|
(269,837 |
) |
|
|
|
$ |
|
(191,987 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
Preferred stock dividends |
|
|
|
59,585 |
|
|
|
|
7,413 |
|
|
|
|
- |
|
|
Net loss available to common shareholders |
|
|
$ |
|
(329,422 |
) |
|
|
|
$ |
|
(199,400 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
|
Loss from continuing operations |
|
|
$ |
|
(245,589 |
) |
|
|
|
$ |
|
(174,437 |
) |
|
|
|
$ |
|
(153,764 |
) |
|
Net income attributable to noncontrolling interest |
|
|
|
11,402 |
|
|
|
|
14,016 |
|
|
|
|
18,835 |
|
Preferred stock dividends |
|
|
|
59,585 |
|
|
|
|
7,413 |
|
|
|
|
- |
|
|
Net loss from continuing operations available to common shareholders |
|
|
$ |
|
(316,576 |
) |
|
|
|
$ |
|
(195,866 |
) |
|
|
|
$ |
|
(172,599 |
) |
|
|
The following table provides a reconciliation of weighted average common shares to diluted average common shares:
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2009 |
|
2008 |
|
2007 |
|
Weighted average common shares outstanding - basic (a) |
|
|
|
220,412 |
|
|
|
|
194,322 |
|
|
|
|
142,027 |
|
Effect of dilutive securities (a) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
Weighted average common shares outstanding - diluted (a) |
|
|
|
220,412 |
|
|
|
|
194,322 |
|
|
|
|
142,027 |
|
|
|
(a) |
|
|
|
All share data has been restated to reflect stock dividends distributed through January 1, 2010.
|
The following tables provide a reconciliation of earnings/(loss) per common and diluted share:
|
|
|
|
|
|
|
Earnings/(loss) per common share: |
|
2009 |
|
2008 |
|
2007 |
|
Loss per share from continuing operations available to common shareholders |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
Income/(loss) per share from discontinued operations, net of tax |
|
|
|
(.05 |
) |
|
|
|
|
(.02 |
) |
|
|
|
|
.02 |
|
|
Net loss per share available to common shareholders |
|
|
$ |
|
(1.49 |
) |
|
|
|
$ |
|
(1.03 |
) |
|
|
|
$ |
|
(1.20 |
) |
|
|
Diluted earnings/(loss) per common share: |
|
|
|
|
|
|
|
Loss per share from continuing operations available to common shareholders |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
Income/(loss) per share from discontinued operations, net of tax |
|
|
|
(.05 |
) |
|
|
|
|
(.02 |
) |
|
|
|
|
.02 |
|
|
Net diluted loss per share available to common shareholders |
|
|
$ |
|
(1.49 |
) |
|
|
|
$ |
|
(1.03 |
) |
|
|
|
$ |
|
(1.20 |
) |
|
|
Due to the net loss attributable to common shareholders for the twelve months ended December 31, 2009, 2008, and 2007, no potentially dilutive shares were included in the loss per share calculations as including such shares would have been antidilutive. Stock options of 14.6 million, 18.8 million, and 20.0 million
with weighted average exercise prices of $29.23, $29.94, and $30.63 per share for the twelve months ended December 31, 2009, 2008, and 2007, respectively, were not included in the computation of diluted loss per common share because such shares would have had an antidilutive effect on earnings per
common share. Other equity awards of 2.6 million, .8 million, and .9 million for the twelve months ended December 31, 2009, 2008, and 2007, respectively, and 13.9 million potentially dilutive shares related to the CPP common stock Warrant were excluded from the computation of diluted loss per common share
because such shares would have had an antidilutive effect on loss per common share.
109
FIRST HORIZON NATIONAL CORPORATION
Note 18 q Restrictions, Contingencies, and Other Disclosures
Restrictions on cash and due from banks. Under the Federal Reserve Act and Regulation D, FHNs commercial banking subsidiary is required to maintain a certain amount of cash reserves. On December 31, 2009 and December 31, 2008, FHNs required reserves were $200.0 million and $244.3 million,
respectively. At the end of 2009 and 2008, this requirement was met with $142.8 million and $175.0 million in vault cash, respectively, and also with Federal Reserve Bank deposits. Vault cash is reflected in Cash and due from Banks on the Consolidated Statements of Condition and Federal Reserve Bank
deposits are reflected as Interest Bearing Cash.
Restrictions on dividends. Cash dividends are paid by FHN from its assets, which are mainly provided by dividends from its subsidiaries. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of cash, dividends, loans, or advances. As of December 31, 2009, FTBNA
had undivided profits of $1.4 billion, none of which was available for distribution to FHN as dividends without prior regulatory approval. At any given time, the pertinent portions of those regulatory restrictions allow FTBNA to declare preferred or common dividends without prior regulatory approval in an amount equal
to FTBNAs retained net income for the two most recent completed years plus the current year to date. For any period, FTBNAs retained net income generally is equal to FTBNAs regulatory net income reduced by the preferred and common dividends declared by FTBNA. Excess dividends in either of the two
most recent completed years may be offset with available retained net income in the two years immediately preceding it. Applying the applicable rules, FTBNAs total amount available for dividends was ($469.3) million at December 31, 2009 and ($322.0) million at January 1, 2010.
In addition, in 2008 FHN issued and sold preferred stock and a common stock warrant under the U.S.Treasurys CPP. Under the terms of that issuance, FHN is not permitted to increase its cash common dividend rate for a period of three years without permission of the Treasury. At the time of the preferred
shares and common stock warrant issuance, FHN did not pay a common cash dividend.
FTBNA has applied for approval from the OCC to declare and pay dividends on its preferred stock outstanding payable in April 2010. FTBNA has not requested approval to pay common dividends to its sole common stockholder, FHN. FHN estimates that it will have sufficient cash available to pay the 5 percent
dividend on the CPP preferred issued to the U.S. Treasury as well as its other current obligations throughout 2010 even if FTBNA were unable to pay a common dividend to FHN during the year.
Restrictions on intercompany transactions. Under Federal banking law, banking subsidiaries may not extend credit to the parent company in excess of 10 percent of the banks capital stock and surplus, as defined, or $491.5 million on December 31, 2009. The parent company had covered transactions of $3.7
million from FTBNA on December 31, 2009. In addition, the aggregate amount of covered transactions with all affiliates, as defined, is limited to 20 percent of the banks capital stock and surplus, or $983.0 million on December 31, 2009. FTBNAs total covered transactions with all affiliates including the parent
company on December 31, 2009 were $483.1 million.
Contingencies. Contingent liabilities arise in the ordinary course of business, including those related to litigation. Various claims and lawsuits are pending against FHN and its subsidiaries. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or
indeterminate damages, or where the cases present novel legal theories or involve a large number of parties, FHN cannot reasonably determine what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss or impact related to
each pending matter may be. FHN establishes loss contingency reserves for litigation matters when estimated loss is both probable and reasonably estimable as prescribed by applicable financial accounting guidance. A reserve generally is not established when a loss contingency either is not probable or its amount
is not reasonably estimable. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance generally requires a reserve to be established at the low end of the range. Based on current knowledge, and after consultation with counsel, management is of the
opinion that loss contingencies related to pending matters should not have a material adverse effect on the consolidated financial condition of FHN, but may be material to FHNs operating results for any particular reporting period depending, in part, on the results from that period.
110
FIRST HORIZON NATIONAL CORPORATION
Note 18 q Restrictions, Contingencies, and Other Disclosures (continued)
On February 16, 2010, an employee of FHNs subsidiary FTN Financial Securities Corp. (FTNFS), along with a former employee of FTNFS, each received a Wells notice from the Staff of the United States Securities and Exchange Commission (the SEC) stating that the Staff intends to recommend that the SEC
bring enforcement actions for allegedly aiding and abetting a former FTNFS customer, Sentinel Management Group, Inc. (Sentinel), in violations of the federal securities laws. The subject of the Wells notices is a 2006 year-end securities repurchase transaction entered into by FTNFS with Sentinel. The Staff has
indicated that FTNFS and one additional employee of FTNFS may also receive Wells notices. A Wells notice by the SEC Staff is neither a formal allegation of wrongdoing nor a determination by the SEC that there has been wrongdoing. A Wells notice generally provides the recipient with an opportunity to
provide his, her, or its perspective to address the Staffs concerns prior to enforcement action being taken by the SEC. FTNFS is one of several defendants named in civil lawsuits brought by the trustee in bankruptcy for Sentinel. The bankruptcy trustees claims against FTNFS, which were first brought in
November 2008, include, among others, commercial bribery, aiding and abetting a breach of fiduciary duty by former executives of Sentinel, federal and state securities fraud, negligent misrepresentation, unjust enrichment and fraudulent transfer. FTNFS believes that it has meritorious defenses to the
bankruptcy trustees claims, and FTNFS is defending itself vigorously in that litigation.
Visa Matters. FHN is a member of the Visa USA network. On October 3, 2007, the Visa organization of affiliated entities completed a series of global restructuring transactions to combine its affiliated operating companies, including Visa USA, under a single holding company, Visa Inc. (Visa). Upon completion of
the reorganization, the members of the Visa USA network remained contingently liable for certain Visa litigation matters. Based on its proportionate membership share of Visa USA, FHN recognized a contingent liability of $55.7 million within noninterest expense in fourth quarter 2007 related to this contingent
obligation.
In March 2008, Visa completed its initial public offering (IPO). Visa funded an escrow account from IPO proceeds that will be used to make payments related to the Visa litigation matters. Upon funding of the escrow, FHN reversed $30.0 million of the contingent liability previously recognized with a corresponding
credit to noninterest expense for its proportionate share of the escrow account. A portion of FHNs Class B shares of Visa were redeemed as part of the IPO resulting in $65.9 million of equity securities gains in first quarter 2008.
In October 2008, Visa announced that it had agreed to settle litigation with Discover Financial Services for $1.9 billion. $1.7 billion of this settlement amount was funded from the escrow account established as part of Visas IPO. In connection with this settlement, FHN recognized additional expense of $11.0 million
within noninterest expense in third quarter 2008. In December 2008, Visa deposited additional funds into the escrow account and FHN recognized a corresponding credit to noninterest expense of $11.0 million for its proportionate share of the amount funded.
In July 2009, Visa deposited an additional $700 million into the escrow account. Accordingly, FHN reduced its contingent liability by $7.0 million through a credit to noninterest expense.
After the partial share redemption in conjunction with the IPO, FHN holds approximately 2.4 million Class B shares of Visa, which are included in the Consolidated Statements of Condition at their historical cost of $0. Conversion of these shares into Class A shares of Visa and, with limited exceptions, transfer of these
shares are restricted until the later of the third anniversary of the IPO or the final resolution of the covered litigation. The final conversion ratio, which was estimated to approximate 58 percent as of December 31, 2009, will fluctuate based on the ultimate settlement of the Visa litigation matters for which FHN has a
proportionate contingent obligation. Future funding of the escrow will dilute this exchange rate by an amount that is yet to be determined.
Other disclosures Company Owned Life Insurance. FHN has purchased life insurance on certain of its employees and is the beneficiary on these policies. On December 31, 2009, the cash surrender value of these policies, which is included in Other assets on the Consolidated Statements of Condition, was $771.5
million. There are restrictions on $65.1 million of the proceeds from these benefits which relate to certain compensation plans. FHN has not borrowed against the cash surrender value of these policies.
Other disclosures Indemnification agreements and guarantees. In the ordinary course of business, FHN enters into indemnification agreements for legal proceedings against its directors and officers and standard representations and
111
FIRST HORIZON NATIONAL CORPORATION
Note 18 q Restrictions, Contingencies, and Other Disclosures (continued)
warranties for underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements. The extent of FHNs obligations under these agreements depends upon the occurrence of future events; therefore, it is not possible to estimate
a maximum potential amount of payouts that could be required with such agreements.
FHN is subject to potential liabilities and losses in relation to loans that it services, and in relation to loans that it originated and sold. FHN evaluates those potential liabilities and maintains reserves for potential losses. In addition, FHN has arrangements with the purchaser of its national home loan origination and
servicing platforms that creates obligations and potential liabilities.
Servicing. FHN services, through a sub-servicer, a predominately first lien mortgage loan portfolio of $42.2 billion as of December 31, 2009, a significant portion of which is held by FNMA and private security holders, with less significant portions held by GNMA and FHLMC. In connection with its servicing activities,
FHN collects and remits the principal and interest payments on the underlying loans for the account of the appropriate investor. In the event of delinquency or non-payment on a loan in a private or agency securitization: (1) the terms of the private securities agreements require FHN, as servicer, to continue to
make monthly advances of principal and interest (P&I) to the trustee for the benefit of the investors; and (2) the terms of the majority of the agency agreements may require the servicer to make advances of P&I, or to repurchase the delinquent or defaulted loan out of the trust pool. For servicer advances of P&I
under the terms of private and FNMA (and GNMA pools) securitizations, FHN can utilize payments of P&I received from other prepaid loans within a particular loan pool in order to advance P&I to the trustee. In the event payments are ultimately made by FHN to satisfy this obligation, P&I advances and servicer
advances are recoverable from: (1) in the case of private securitizations, the liquidation proceeds of the property securing the loan and (2) in the case of agency loans, from the proceeds of the foreclosure sale by the Government Agency.
FHN is also subject to losses in its loan servicing portfolio due to loan foreclosures. Foreclosure exposure arises from certain agency agreements which limit the agencys repayment guarantees on foreclosed loans, resulting in certain foreclosure costs being borne by servicers. Foreclosure exposure also includes real
estate costs, marketing costs, and costs to maintain properties, especially during protracted resale periods in geographic areas of the country negatively impacted by declining home values.
FHN is also subject to losses due to unreimbursed servicing expenditures made in connection with the administration of current governmental and/or regulatory loss mitigation and loan modification programs. Additionally, FHN is required to repurchase GNMA loans prior to modification.
Loans Originated and Sold. Prior to 2009, FHN originated loans through its legacy mortgage business, primarily first lien home loans, with the intention of selling them. Sometimes the loans were sold with full or limited recourse, but much more often the loans were sold without recourse. For loans sold with
recourse, FHN has indemnity and repurchase exposure if the loans default. For loans sold without recourse, FHN has repurchase exposure primarily for claims that FHN breached its representations and warranties made to the purchasers at the time of sale. From 2005 through 2008, FHN sold approximately $114
billion of such loans.
For loans sold without recourse, FHN has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations or warranties made by FHN at the time of sale. Such
representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and loans obtained through fraud by borrowers or other third parties such as appraisers.
FHN utilizes multiple techniques in assessing the adequacy of its repurchase and foreclosure reserve for loans sold without recourse for which it has continuing obligations under representations and warranties. FHN tracks actual repurchase or make-whole losses by investor, loan pool, and vintage (year loan was
sold) and this historical data is used to calculate estimated remaining inherent loss content within its vintages of loan sales. Due to the historical nature of this calculation, as well as the increasing volume of requests (the pipeline) from investors, FHN performs additional analysis of repurchase and make whole
obligations and applies management judgment which incorporates known current trends in repurchase and make-whole requests, loss severity trends, alternative
112
FIRST HORIZON NATIONAL CORPORATION
Note 18 q Restrictions, Contingencies, and Other Disclosures (continued)
resolutions, and rescission rates (repurchase requests rejected by FHN) in the determination of the appropriate reserve level.
FHN has sold certain agency mortgage loans with full recourse under agreements to repurchase the loans upon default. Loans sold with full recourse generally include mortgage loans sold to investors in the secondary market which are uninsurable under government guaranteed mortgage loan programs due to
issues associated with underwriting activities, documentation, or other concerns. For mortgage insured single-family residential loans, in the event of borrower nonperformance, FHN would assume losses to the extent they exceed the value of the collateral and private mortgage insurance, FHA insurance, or VA
guaranty. On December 31, 2009 and 2008, FHN had single-family residential loans with outstanding balances of $71.9 million and $80.9 million, respectively, that were sold, servicing retained, on a full recourse basis.
Loans sold with limited recourse include loans sold under government guaranteed mortgage loan programs including the FHA and VA. FHN continues to absorb losses due to uncollected interest and foreclosure costs and/or limited risk of credit losses in the event of foreclosure of the mortgage loan sold. Generally,
the amount of recourse liability in the event of foreclosure is determined based upon the respective government program and/or the sale or disposal of the foreclosed property collateralizing the mortgage loan. Another instance of limited recourse is the VA/No bid. In this case, the VA guarantee is limited and FHN
may be required to fund any deficiency in excess of the VA guarantee if the loan goes to foreclosure. On December 31, 2009 and 2008, the outstanding principal balance of loans sold with limited recourse arrangements where some portion of the principal is at risk and serviced by FHN was $3.3 billion and $3.5
billion, respectively. Additionally, on December 31, 2009 and 2008, $1.0 billion and $1.7 billion, respectively, of mortgage loans were outstanding which were sold under limited recourse arrangements where the risk is limited to interest and servicing advances.
The reserve for foreclosure losses for loans sold with full or limited recourse is based upon a historical progression model using a rolling 12-month average, which predicts the probability or frequency of a mortgage loan entering foreclosure. In addition, other factors are considered, including qualitative and
quantitative factors (e.g., current economic conditions, past collection experience, risk characteristics of the current portfolio, and other factors), which are not defined by historical loss trends or severity of losses.
FHN has evaluated its exposure under all of these obligations and accordingly, has reserved for losses of $105.7 million, $37.0 million, and $16.2 million as of December 31, 2009, 2008, and 2007, respectively. Reserves for FHNs estimate of these obligations are reflected in Other liabilities on the Consolidated
Statements of Condition while expense related to this reserve is included within Mortgage banking foreclosure and repurchase provision on the Consolidated Statements of Income.
Equity-Lending Related Repurchase Obligations. FHN has securitized and sold HELOC and second lien mortgages which are held by private security holders, and on December 31, 2009, the outstanding principal balance of these loans was $170.8 million and $39.7 million, respectively. On December 31, 2008,
the outstanding principal balance of securitized and sold HELOC and second lien mortgages was $210.6 million and $54.9 million, respectively. In connection with its servicing activities, FTBNA does not guarantee the receipt of the scheduled principal and interest payments on the underlying loans, but does have
residual interests of $3.7 million and $8.2 million on December 31, 2009 and 2008, respectively, which are available to make the security holder whole in the event of credit losses. FHN has projected expected credit losses in the valuation of the residual interest.
FHN has also sold HELOC and second lien mortgages without recourse through whole loan sales. In 2009, FHN settled a substantial portion of its repurchase obligations through an agreement with the primary purchaser of HELOC and second lien loans that were previously transferred through whole loan sales. This
settlement included the transfer of retained servicing rights associated with the applicable second lien and HELOC loan sales. FHN does not guarantee the receipt of the scheduled principal and interest payments on the underlying loans but does have an obligation to repurchase the loans excluded from the above
settlement for which there is a breach of representations and warranties provided to the buyers. The remaining repurchase reserve is minimal reflecting the settlement discussed above.
113
FIRST HORIZON NATIONAL CORPORATION
Note 18 q Restrictions, Contingencies, and Other Disclosures (continued)
Other. A wholly-owned subsidiary of FHN has agreements with several providers of private mortgage insurance whereby the subsidiary has agreed to accept insurance risk for specified loss corridors for loans originated in each contract year in exchange for a portion of the private mortgage insurance premiums paid
by borrowers (i.e., reinsurance arrangements). The loss corridors vary for each primary insurer for each contract year. No new reinsurance arrangements have been initiated after 2008. In 2009, FHN agreed to settle certain of its reinsurance obligations with primary insurers, resulting in a decrease in the reserve
balance and the associated trust assets. As of December 31, 2009, FHN has reserved $29.3 million for its estimated liability under the reinsurance arrangements. In accordance with the terms of the contracts with the primary insurers, as of December 31, 2009, FHN has placed $44.0 million of prior premium
collections in trust for payment of claims arising under the reinsurance arrangements. Also, as of December 31, 2009, $12.1 million of these funds were allocated for future delivery to primary insurers for completion of existing settlement arrangements.
2008 Sale of National Origination and Servicing Platforms. In conjunction with the sale of its servicing platform in August 2008, FHN entered into a three year subservicing arrangement with the purchaser for the unsold portion of FHNs servicing portfolio. As part of the subservicing agreement, FHN has agreed
to a make-whole arrangement whereby if the number of loans subserviced by the purchaser falls below specified levels and the direct servicing cost per loan is greater than a specified amount (determined using loans serviced on behalf of both FHN and the purchaser), FHN will make a payment according to a
contractually specified formula. The make-whole payment is subject to a cap, which is $15.0 million if triggered during the eight quarters following the first anniversary of the divestiture. As part of the 2008 transaction, FHN recognized a contingent liability of $1.2 million representing the estimated fair value of its
performance obligation under the make-whole arrangement.
Note 19 q Savings, Pension, and Other Employee Benefits
Savings plan. FHN has a qualified defined contribution plan that covers substantially all employees. Under this plan, employees can invest their money in any of the available investment funds and receive a company match of $.50 for each $1.00 invested up to 6 percent of pre-tax contributions made by the
employee, subject to Code limitations. The company match contribution initially is invested in company stock. The savings plan also allows employees to invest in a non-leveraged employee stock ownership plan (ESOP). Cash dividends on shares held by the ESOP are charged to retained earnings and the shares
are considered outstanding in computing earnings per share. The number of allocated shares held by the ESOP totaled 10,886,636 on December 31, 2009.
FHN also provides flexible dollars to assist employees with the cost of annual benefits and/or allows the employee to contribute to his or her qualified savings plan. These flexible dollars are pre-tax contributions and are based upon the employees years of service and qualified compensation.
Contributions made by FHN through the flexible benefits plan and the company matches were $18.3 million for 2009, $27.2 million for 2008, and $30.4 million for 2007.
Effective January 1, 2008, the company added the Employee Non-voluntary Elective Contribution (ENEC) program to the savings plan that is provided only to employees who are not eligible for the pension plan. With the ENEC program, FHN will generally make contributions to eligible employees savings plan
accounts based upon company performance. Contribution amounts will be a percentage of each employees base salary (as defined in the savings plan) earned the prior year. FHN intends to make a contribution of $1.2 million for this plan in 2010 related to the 2009 plan year. FHN made a contribution of $.5
million for this plan in 2009 related to the 2008 plan year.
Pension plan. FHN closed participation in the noncontributory, qualified defined benefit pension plan to employees hired or re-hired on September 1, 2007, or later. This did not impact the benefits of employees currently participating in the plan. Certain employees of FHNs insurance subsidiaries are not covered by
the pension plan. Pension benefits are based on years of service, average compensation near retirement, and estimated social security benefits at age 65. FHN contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation.
114
FIRST HORIZON NATIONAL CORPORATION
Note 19 q Savings, Pension, and Other Employee Benefits (continued)
FHN also maintains nonqualified plans including a supplemental retirement plan that covers certain employees whose benefits under the pension plan have been limited. Additionally, the ENEC program was added under the FHN savings plan that is provided only to employees who are not eligible for the pension
plan.
In December 2009, FHN management determined that the accrual of benefits under the qualified pension plan and the supplemental retirement plan would cease as of December 31, 2012. No increases or decreases will occur after this date. In conjunction with this action, FHN recognized $2.8 million of
curtailment expense in fourth quarter 2009. FHN also recognized a $28.8 million reduction in the plans projected benefit obligations and a $16.5 million tax affected adjustment to shareholders equity. FHN will continue to offer retirement benefits to employees by expanding the profit-sharing program to more
employees and increasing the 401k match.
Other employee benefits. FHN provides post-retirement life insurance benefits to certain employees and also provides post-retirement medical insurance to retirement-eligible employees. The post-retirement medical plan is contributory with retiree contributions adjusted annually and is based on criteria that are a
combination of the employees age and years of service. For any employee retiring on or after January 1, 1995, FHN contributes a fixed amount based on years of service and age at the time of retirement. FHNs post-retirement benefits include prescription drug benefits. The Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (the Act) introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care that provide a benefit that is actuarially equivalent to Medicare Part D. FHN anticipates receiving a prescription drug subsidy under
the Act through 2012.
Actuarial assumptions. FHNs process for developing the long-term expected rate of return of pension plan assets is based on two primary sources of investment portfolio returns: capital market exposure and active management benefit. Capital market exposure refers to the Plans broad allocation of its assets to
asset classes, such as Large Cap Equity and Fixed Income. Active management refers to hiring investment managers to select individual securities that are expected to outperform the market. Active management provides only a small measure of the plans overall return. FHN also considers expectations for inflation,
real interest rates, and various risk premiums based primarily on the historical risk premium for each asset class. The expected return is based upon a twenty year time horizon. Given the long term nature of these investments, current market conditions do not significantly affect the expected return. This resulted in
the selection of an 8.05 percent assumption for 2010 for the defined benefit pension plan and 5.23 percent assumption for postretirement medical plan assets dedicated to employees who retired prior to January 1, 1993.
The discount rates for the three years ended 2009 for pension and other benefits were determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rates are selected based upon data specific to FHNs plan and
employee population. The bonds used to create the hypothetical yield curve were subjected to several requirements to ensure that the resulting rates were representative of the bonds that would be selected by management to fulfill the companys funding obligations. In addition to the AA rating, only non-callable
bonds were included. Each bond issue was required to have at least $150 million par outstanding so that each issue was sufficiently marketable. Finally, bonds more than two standard deviations from the average yield were removed. When selecting the discount rate, FHN matches the duration of high quality
bonds with the duration of the obligations of the plan as of the measurement date. High quality corporate bonds experienced declining yields in 2009 resulting in a discount rate lower than 2008 and therefore, higher pension plan liabilities. For all years presented, the measurement date of the benefit obligations
and net periodic benefit costs was December 31.
115
FIRST HORIZON NATIONAL CORPORATION
Note 19 q Savings, Pension, and Other Employee Benefits (continued)
The actuarial assumptions used in the defined benefit pension plan and the other employee benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligations |
|
Net Periodic Benefit Cost |
|
2009 |
|
2008 |
|
2007 |
|
2009 |
|
2008 |
|
2007 |
|
Discount rate |
|
|
|
|
|
|
|
|
|
|
|
|
Qualified pension |
|
|
|
6.05 |
% |
|
|
|
|
6.85 |
% |
|
|
|
|
7.00 |
% |
|
|
|
|
6.85 |
% |
|
|
|
|
7.00 |
% |
|
|
|
|
5.97 |
% |
|
Nonqualified pension |
|
|
|
5.55 |
|
|
|
|
6.90 |
|
|
|
|
6.70 |
|
|
|
|
6.90 |
|
|
|
|
6.70 |
|
|
|
|
6.12 |
|
Other nonqualified pension |
|
|
|
5.35 |
|
|
|
|
6.95 |
|
|
|
|
6.55 |
|
|
|
|
6.95 |
|
|
|
|
6.83 |
|
|
|
|
N/A |
|
Postretirement benefit |
|
|
|
5.65 |
|
|
|
|
6.90 |
|
|
|
|
6.60 |
|
|
|
|
6.90 |
|
|
|
|
6.60 |
|
|
|
|
5.83 |
|
|
Expected long-term rate of return |
|
|
|
|
|
|
|
|
|
|
|
|
Qualified pension/postretirement benefits |
|
|
|
8.05 |
% |
|
|
|
|
8.42 |
% |
|
|
|
|
8.87 |
% |
|
|
|
|
8.42 |
% |
|
|
|
|
8.87 |
% |
|
|
|
|
8.35 |
% |
|
Postretirement benefit (retirees prior to January 1, 1993) |
|
|
|
5.23 |
|
|
|
|
5.47 |
|
|
|
|
5.77 |
|
|
|
|
5.47 |
|
|
|
|
5.77 |
|
|
|
|
5.43 |
|
|
Rate of compensation increase |
|
|
|
4.10 |
% |
|
|
|
|
4.10 |
% |
|
|
|
|
4.10 |
% |
|
|
|
|
4.10 |
% |
|
|
|
|
4.10 |
% |
|
|
|
|
4.10 |
% |
|
|
The assumed health care cost trend rates used in the defined benefit pension plan and the other employee benefit plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
Assumed health care cost trend rates on December 31 |
|
Participants under age 65 |
|
Participants 65 years and older |
|
Participants under age 65 |
|
Participants 65 years and older |
|
|
|
Health care cost trend rate assumed for next year |
|
|
|
7.00 |
% |
|
|
|
|
9.00 |
% |
|
|
|
|
8.50 |
% |
|
|
|
|
10.50 |
% |
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |
|
|
|
5.00 |
|
|
|
|
5.00 |
|
|
|
|
6.00 |
|
|
|
|
6.00 |
|
Year that the rate reaches the ultimate trend rate |
|
|
|
2014 |
|
|
|
|
2018 |
|
|
|
|
2013 |
|
|
|
|
2017 |
|
|
The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
(Dollars in thousands) |
|
1% Increase |
|
1% Decrease |
|
Adjusted total service and interest cost components |
|
|
$ |
|
1,478 |
|
|
|
$ |
|
1,370 |
|
Adjusted postretirement benefit obligation at end of plan year |
|
|
|
18,567 |
|
|
|
|
17,178 |
|
|
The components of net periodic benefit cost for the plan years 2009, 2008, and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Pension Benefits |
|
Other Benefits |
|
2009 |
|
2008 |
|
2007 |
|
2009 |
|
2008 |
|
2007 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
|
$ |
|
14,167 |
|
|
|
$ |
|
15,809 |
|
|
|
$ |
|
19,206 |
|
|
|
$ |
|
971 |
|
|
|
$ |
|
276 |
|
|
|
$ |
|
298 |
|
Interest cost |
|
|
|
31,766 |
|
|
|
|
29,516 |
|
|
|
|
26,250 |
|
|
|
|
3,194 |
|
|
|
|
2,339 |
|
|
|
|
1,112 |
|
Expected return on plan assets |
|
|
|
(46,327 |
) |
|
|
|
|
(46,938 |
) |
|
|
|
|
(42,549 |
) |
|
|
|
|
(1,133 |
) |
|
|
|
|
(1,749 |
) |
|
|
|
|
(1,762 |
) |
|
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
Transition (asset)/obligation |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
987 |
|
|
|
|
988 |
|
|
|
|
988 |
|
Prior service cost/(credit) |
|
|
|
758 |
|
|
|
|
864 |
|
|
|
|
880 |
|
|
|
|
1,437 |
|
|
|
|
(176 |
) |
|
|
|
|
(176 |
) |
|
Actuarial (gain)/loss |
|
|
|
8,262 |
|
|
|
|
2,417 |
|
|
|
|
7,138 |
|
|
|
|
(836 |
) |
|
|
|
|
(368 |
) |
|
|
|
|
(711 |
) |
|
|
Net periodic benefit cost/(income) |
|
|
$ |
|
8,626 |
|
|
|
$ |
|
1,668 |
|
|
|
$ |
|
10,925 |
|
|
|
$ |
|
4,620 |
|
|
|
$ |
|
1,310 |
|
|
|
$ |
|
(251 |
) |
|
|
ASC 715 curtailment/settlement expense (a) |
|
|
|
2,867 |
|
|
|
|
1,269 |
|
|
|
|
456 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
Total ASC 715 expense/(income) |
|
|
$ |
|
11,493 |
|
|
|
$ |
|
2,937 |
|
|
|
$ |
|
11,381 |
|
|
|
$ |
|
4,620 |
|
|
|
$ |
|
1,310 |
|
|
|
$ |
|
(251 |
) |
|
|
|
(a) |
|
|
|
Includes curtailment expense reflecting managements decision to cease benefit accruals as of December 31, 2012.
|
116
FIRST HORIZON NATIONAL CORPORATION
Note 19 q Savings, Pension, and Other Employee Benefits (continued)
In 2008 and 2007, lump sum payments from a non-qualified plan triggered settlement accounting. In accordance with its practice, FHN performed a remeasurement of the plan in conjunction with the settlement and recognized the ASC 715 settlement expense reflected above.
The following tables set forth the plans benefit obligations and plan assets for 2009 and 2008:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Pension Benefits |
|
Other Benefits |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Change in Benefit Obligation |
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
|
|
$ |
|
472,074 |
|
|
|
$ |
|
429,707 |
|
|
|
$ |
|
35,762 |
|
|
|
$ |
|
24,420 |
|
Benefit obligation, adjustment |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
23,133 |
|
|
|
|
- |
|
Adoption of ASC 715-60 for endorsement split dollar life insurance |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
13,725 |
|
Service cost |
|
|
|
14,167 |
|
|
|
|
15,809 |
|
|
|
|
971 |
|
|
|
|
276 |
|
Interest cost |
|
|
|
31,766 |
|
|
|
|
29,516 |
|
|
|
|
3,194 |
|
|
|
|
2,339 |
|
Plan amendments |
|
|
|
- |
|
|
|
|
59 |
|
|
|
|
(17,088 |
) |
|
|
|
|
- |
|
Actuarial (gain)/loss |
|
|
|
64,032 |
|
|
|
|
16,063 |
|
|
|
|
(2,082 |
) |
|
|
|
|
(3,929 |
) |
|
Actual benefits paid |
|
|
|
(19,778 |
) |
|
|
|
|
(18,077 |
) |
|
|
|
|
(2,532 |
) |
|
|
|
|
(1,422 |
) |
|
Liability (gain)/loss due to curtailment |
|
|
|
(28,844 |
) |
|
|
|
|
(1,829 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Expected Medicare Part D reimbursement |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
368 |
|
|
|
|
353 |
|
Special termination benefits |
|
|
|
58 |
|
|
|
|
826 |
|
|
|
|
- |
|
|
|
|
- |
|
|
Benefit obligation, end of year |
|
|
$ |
|
533,475 |
|
|
|
$ |
|
472,074 |
|
|
|
$ |
|
41,726 |
|
|
|
$ |
|
35,762 |
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
|
$ |
|
378,519 |
|
|
|
$ |
|
503,541 |
|
|
|
$ |
|
14,605 |
|
|
|
$ |
|
21,808 |
|
Actual return on plan assets |
|
|
|
83,272 |
|
|
|
|
(141,105 |
) |
|
|
|
|
3,240 |
|
|
|
|
(6,487 |
) |
|
Employer contributions |
|
|
|
54,317 |
|
|
|
|
35,989 |
|
|
|
|
610 |
|
|
|
|
706 |
|
Actual benefits paid settlement payments |
|
|
|
(18,387 |
) |
|
|
|
|
(18,448 |
) |
|
|
|
|
(2,532 |
) |
|
|
|
|
(1,422 |
) |
|
Actual benefits paid annuities |
|
|
|
(1,391 |
) |
|
|
|
|
(1,458 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
Fair value of plan assets, end of year |
|
|
$ |
|
496,330 |
|
|
|
$ |
|
378,519 |
|
|
|
$ |
|
15,923 |
|
|
|
$ |
|
14,605 |
|
|
Funded status of the plan |
|
|
$ |
|
(37,145 |
) |
|
|
|
$ |
|
(93,555 |
) |
|
|
|
$ |
|
(25,803 |
) |
|
|
|
$ |
|
(21,157 |
) |
|
|
Additional Amounts Recognized in the Statements of Financial Condition |
|
|
|
|
|
|
|
|
Other assets |
|
|
$ |
|
14,525 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
Other liabilities |
|
|
|
(51,670 |
) |
|
|
|
|
(93,555 |
) |
|
|
|
|
(25,803 |
) |
|
|
|
|
(21,157 |
) |
|
|
Net asset/(liability) at end of year |
|
|
$ |
|
(37,145 |
) |
|
|
|
$ |
|
(93,555 |
) |
|
|
|
$ |
|
(25,803 |
) |
|
|
|
$ |
|
(21,157 |
) |
|
|
In 2009, FHN determined that a previously existing retiree life insurance benefit met the requirements for reporting under ASC 715. A liability for these benefits was not previously recorded as the premiums were expensed over the insurance period. A $10.7 million adjustment to recognize the cumulative impact of
establishing the employee benefit liability is not included in the 2009 net periodic benefit cost. The recognition of this liability of $23.1 million is presented as an adjustment in the reconciliation of the benefit obligation for other benefits in 2009. In third quarter 2009, FHN modified post-retirement benefits payable
to active employees under this plan. As a result of this change, FHN recognized a reduction in its benefit liability of $17.1 million with an offset, net of tax, to accumulated other comprehensive income. This change is reflected as a plan amendment in the reconciliation of the benefit obligation for other benefits in
2009.
Effective January 1, 2008, FHN adopted FASB Codification Topic ASC 715-60 relating to CompensationRetirement Benefits (ASC 715-60). ASC 715-60 requires that a liability be recognized for contracts written to employees which provide future postretirement benefits that are covered by endorsement split-dollar life
insurance arrangements because such obligations are not considered to be effectively settled upon entering into the related
117
FIRST HORIZON NATIONAL CORPORATION
Note 19 q Savings, Pension, and Other Employee Benefits (continued)
insurance arrangements. FHN recognized a decrease to undivided profits of $8.5 million, net of tax, upon adoption of ASC 715-60.
The accumulated benefit obligation for the pension plan was $509.8 million as of December 31, 2009, and $432.0 million as of December 31, 2008. At December 31, 2009, both the projected benefit obligation and the accumulated benefit obligation for the qualified pension plan was less than the fair market
value of plan assets. FHN made a $50.0 million contribution in December 2009 to the qualified pension plan.
Future decisions will be based upon pension funding requirements under the Pension Protection Act, the maximum deductible under the Internal Revenue Code, and the actual performance of plan assets during 2010. At this time, FHN does not expect to make a contribution to the qualified pension plan during
2010. The non-qualified pension plans and other postretirement benefit plans are unfunded and contributions to these plans cover all benefits paid under the non-qualified plans. These amounts were $6.7 million for 2009 and $6.2 million for 2008. FHN anticipates making a $4.9 million contribution in 2010.
Unrecognized transition assets and obligations, unrecognized actuarial gains and losses, and unrecognized prior service costs and credits are recognized as a component of accumulated other comprehensive income. Balances reflected in accumulated other comprehensive income on a pre-tax basis for the years
ended December 31, 2009 and 2008 consist of:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Pension Benefits |
|
Other Benefits |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Amounts Recognized in Accumulated Other Comprehensive Income |
|
|
|
|
|
|
|
|
Net transition (asset)/obligation |
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
2,714 |
|
|
|
$ |
|
3,703 |
|
Prior service cost/(credit) |
|
|
|
1,484 |
|
|
|
|
5,051 |
|
|
|
|
613 |
|
|
|
|
(848 |
) |
|
Net actuarial (gain)/loss |
|
|
|
296,879 |
|
|
|
|
306,898 |
|
|
|
|
(11,786 |
) |
|
|
|
|
(859 |
) |
|
|
Total |
|
|
$ |
|
298,363 |
|
|
|
$ |
|
311,949 |
|
|
|
$ |
|
(8,459 |
) |
|
|
|
$ |
|
1,996 |
|
|
The amounts recognized in other comprehensive income during 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Pension Benefits |
|
Other Benefits |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Changes in plan assets and benefit obligation recognized in other comprehensive income |
|
|
|
|
|
|
|
|
Net actuarial (gain)/loss arising during measurement period (a) |
|
|
$ |
|
(1,812 |
) |
|
|
|
$ |
|
204,106 |
|
|
|
$ |
|
(3,934 |
) |
|
|
|
$ |
|
4,052 |
|
Prior service cost arising during measurement period |
|
|
|
- |
|
|
|
|
59 |
|
|
|
|
(17,088 |
) |
|
|
|
|
- |
|
Loss due to settlement |
|
|
|
- |
|
|
|
|
(443 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Items amortized during the measurement period: |
|
|
|
|
|
|
|
|
Transition (asset)/obligation |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(987 |
) |
|
|
|
|
(988 |
) |
|
Prior service (credit)/cost |
|
|
|
(3,567 |
) |
|
|
|
|
(864 |
) |
|
|
|
|
18,549 |
|
|
|
|
176 |
|
Net actuarial (gain)/loss |
|
|
|
(8,262 |
) |
|
|
|
|
(2,417 |
) |
|
|
|
|
(7,018 |
) |
|
|
|
|
623 |
|
|
Total recognized in other comprehensive income |
|
|
$ |
|
(13,641 |
) |
|
|
|
$ |
|
200,441 |
|
|
|
$ |
|
(10,478 |
) |
|
|
|
$ |
|
3,863 |
|
|
|
(a) |
|
|
|
Includes a positive, after-tax effect of $18.3 million due to a curtailment.
|
118
FIRST HORIZON NATIONAL CORPORATION
Note 19 q Savings, Pension, and Other Employee Benefits (continued)
The estimated net actuarial (gain)/loss, prior service cost/(credit), and transition (asset)/obligation for the plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the following fiscal year are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Pension Benefits |
|
Other Benefits |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Net transition obligation |
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
987 |
|
|
|
$ |
|
987 |
|
Prior service cost/(credit) |
|
|
|
267 |
|
|
|
|
758 |
|
|
|
|
(8 |
) |
|
|
|
|
(176 |
) |
|
Net actuarial (gain)/loss |
|
|
|
15,086 |
|
|
|
|
7,893 |
|
|
|
|
(862 |
) |
|
|
|
|
- |
|
|
FHN does not expect any defined benefit pension plans and other employee benefit plans assets to be returned to FHN in 2010.
The following table provides detail on expected benefit payments, which reflect expected future service, as appropriate, and projected Medicare reimbursements:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Pension Benefits |
|
Other Benefits |
|
Medicare Reimbursements |
|
2010 |
|
|
$ |
|
21,114 |
|
|
|
$ |
|
2,320 |
|
|
|
$ |
|
411 |
|
2011 |
|
|
|
22,396 |
|
|
|
|
2,438 |
|
|
|
|
458 |
|
2012 |
|
|
|
24,652 |
|
|
|
|
2,555 |
|
|
|
|
519 |
|
2013 |
|
|
|
27,101 |
|
|
|
|
2,663 |
|
|
|
|
- |
|
2014 |
|
|
|
28,818 |
|
|
|
|
2,763 |
|
|
|
|
- |
|
2015 2019 |
|
|
|
171,256 |
|
|
|
|
15,039 |
|
|
|
|
- |
|
|
Plan assets. FHNs overall investment goal is to create, over the life of the pension plan and retiree medical plan, respectively, an adequate pool of sufficiently liquid assets to support the pension benefit obligations to participants, retirees, and beneficiaries, as well as to partially support the medical obligations to
retirees and beneficiaries. Thus, the pension plan and retiree medical plan seek to achieve a high level of investment return consistent with a prudent level of portfolio risk.
The target allocations on a weighted-average basis for the pension plan are 60 percent equity securities and 40 percent to all other types of investments. Equity securities primarily include investments in large capital and small capital companies located in the United States, as well as some international equity.
Other types of investments include investments in money market funds, mutual funds, common and collective funds, and fixed income securities. Fixed income securities include U.S. Treasuries, corporate bonds of companies from diversified industries, and foreign bonds. Retiree medical funds are kept in short-
term investments, primarily money market funds. On December 31, 2009, FHN did not have any significant concentrations of risk within the plan assets related to the pension plan or the retiree medical plan.
The fair value of FHNs pension plan assets at December 31, 2009, by asset category classified using the Fair Value measurement hierarchy are shown in the table below. See Note 22 Fair Value of Assets and Liabilities for more details about Fair Value measurements.
119
FIRST HORIZON NATIONAL CORPORATION
Note 19 q Savings, Pension, and Other Employee Benefits (continued)
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Cash equivalents and money market funds |
|
|
$ |
|
39,879 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
39,879 |
|
Equity securities: |
|
|
|
|
|
|
|
|
U.S. large capital |
|
|
|
124,588 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
124,588 |
|
U.S. small capital |
|
|
|
90,102 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
90,102 |
|
Mutual funds (a) |
|
|
|
1,234 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
1,234 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
|
- |
|
|
|
|
7,876 |
|
|
|
|
- |
|
|
|
|
7,876 |
|
Corporate and foreign bonds |
|
|
|
77,322 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
77,322 |
|
Common and collective funds (b) |
|
|
|
- |
|
|
|
|
155,329 |
|
|
|
|
- |
|
|
|
|
155,329 |
|
|
Total |
|
|
$ |
|
333,125 |
|
|
|
$ |
|
163,205 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
496,330 |
|
|
|
(a) |
|
|
|
Primarily includes investments in small-cap equity securities. |
|
(b) |
|
|
|
62 percent of common and collective funds is invested in corporate and foreign bonds with the remainder in international equity securities.
|
Any shortfall of investment performance compared to investment objectives should be explainable in terms of general economic and capital market conditions. The Retirement Investment Committee, comprised of senior managers within the organization, meets monthly to review asset performance and the need for
rebalancing. At a minimum, rebalancing occurs annually for the purpose of remaining within the established target asset allocation ranges and to maintain liquidity for benefit payments. Risk management is also reviewed and evaluated based upon the organizations ability to assume investment risk.
The fair value of FHNs retiree medical plan assets at December 31, 2009, by asset category are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Cash equivalents and money market funds |
|
|
$ |
|
399 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
399 |
|
Equity securities: |
|
|
|
|
|
|
|
|
U.S. large capital |
|
|
|
5,693 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
5,693 |
|
U.S. small capital |
|
|
|
4,024 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
4,024 |
|
Mutual funds (a) |
|
|
|
4,898 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
4,898 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
|
- |
|
|
|
|
334 |
|
|
|
|
- |
|
|
|
|
334 |
|
Corporate and foreign bonds |
|
|
|
- |
|
|
|
|
575 |
|
|
|
|
- |
|
|
|
|
575 |
|
|
Total |
|
|
$ |
|
15,014 |
|
|
|
$ |
|
909 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
15,923 |
|
|
|
(a) |
|
|
|
Primarily includes investments in fixed income corporate and foreign bonds.
|
The number of shares of FHN common stock held by the plan was 734,220 for 2009 and 680,515 for 2008.
120
FIRST HORIZON NATIONAL CORPORATION
Note 20 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans
Restricted stock plans
FHN has authorized the issuance of its common stock for awards to executive and other management employees who have a significant impact on the profitability of FHN. All unvested awards either have a service and/or a performance condition which the employee must meet in order for the shares to ultimately
vest. On December 31, 2009, there were 3,156,806 shares available for grants, of this amount, 1,754,292 are available to be granted as restricted shares.
Performance condition grants. Under the long-term incentive and corporate performance programs, performance shares or units vest only if predetermined performance measures are met. The awards are forfeited if performance goals are not achieved within the specified performance periods. In 2009, executives
were awarded performance stock units subject to certain performance criteria being met under this program. It was determined that the performance component related to this grant was met during 2009. Accordingly, 50% of the units will vest in 2012 and 50% will vest in 2013 provided continued employment
with FHN. This grant is subject to the US Treasurys Troubled Asset Relief Program (TARP) restrictions. In 2009, FHN granted restricted stock and long term incentive cash units, with performance criteria to management employees with vesting over 3 and 4 years. In 2008, executives were awarded performance
restricted stock with 50% vesting in 2011 and 50% vesting in 2012 subject to certain performance criteria being met. As of December 31, 2009, the performance targets related to the 2008 performance grant have not yet been achieved.
Service condition grants. In 2009, executives and management were awarded restricted shares with service conditions only. Half of this award is scheduled to vest in 2012 and the remainder is scheduled to vest in 2013. The restricted shares granted to executives are subject to TARP restrictions. In 2008, retention
awards were granted to certain employees with 50% of the award to be paid in cash in 2009 and 50% to be paid in shares in 2010, pending completion of specified service conditions. Further, from time to time awards of restricted stock may be awarded to new executive-level employees upon hiring. Restricted
shares and share units granted in 2009 are included in the table below.
Director grants. Additionally, one of the plans allows stock awards to be granted to non-employee directors upon approval by the board of directors. Prior to 2007 the board granted 8,396 shares of restricted stock to each new non-employee director upon election to the board, with restrictions lapsing at a rate of ten
percent per year. That program was discontinued in 2007, although legacy awards remain outstanding. Each non-employee director who no longer has legacy awards, and each new director, now receives an annual award of restricted stock units (RSUs) valued at $45,000. For a new director, that amount is pro-
rated if the directors start date is not in April. Each RSU award is scheduled to vest the following year and is paid in common shares (including any shares earned as a result of stock dividends) plus any accrued cash dividends. Non-employee directors whose service pre-dates 2007 also participate in the RSU
program, but participation is phased in as the old restricted stock awards vest. Presently, each non-employee director should have one of the following occur each year: 840 old restricted shares will vest; or, a full grant of new RSUs will vest; or, a combination of old restricted shares (less than 840) and new RSUs
(less than 100%) will vest. In 2009, five non-employee directors received an RSU award and the remainder had old restricted shares vest. No shares or RSUs were immediately vested or forfeited due to director retirements or resignations.
121
FIRST HORIZON NATIONAL CORPORATION
Note 20 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans (continued)
The summary of restricted and performance stock activity during the year ended December 31, 2009, is presented below:
|
|
|
|
|
|
|
Shares/ Units |
|
Weighted average grant date fair value |
|
Nonvested on January 1, 2009 |
|
|
|
1,573,090 |
|
|
|
$ |
|
23.60 |
|
Shares/units granted |
|
|
|
2,387,188 |
|
|
|
|
8.90 |
|
Shares/units vested |
|
|
|
(220,715 |
) |
|
|
|
|
34.17 |
|
Shares/units canceled |
|
|
|
(94,075 |
) |
|
|
|
|
31.33 |
|
Other adjustments (a) |
|
|
|
(27,864 |
) |
|
|
|
|
11.31 |
|
|
|
|
|
|
Nonvested on December 31, 2009 |
|
|
|
3,617,624 |
|
|
|
$ |
|
13.21 |
|
|
|
(a) |
|
|
|
Represents adjustments made to a restricted stock award that is remeasured at the end of each period.
|
On December 31, 2009, there was $14.3 million of unrecognized compensation cost related to nonvested restricted stock plans. That cost is expected to be recognized over a weighted-average period of 2.34 years. The total grant date fair value of shares vested during 2009, 2008 and 2007, was $3.2 million, $7.7
million and $2.8 million, respectively.
The compensation cost that has been included in income from continuing operations pertaining to both stock option and restricted stock plans was $7.5 million, $5.8 million and $10.8 million for 2009, 2008, and 2007, respectively. The corresponding total income tax benefits recognized in the income statements
were $2.7 million, $2.2 million and $4.0 million for 2009, 2008, and 2007, respectively.
Consistent with Tennessee state law, only new or authorized, but unissued, shares may be utilized in connection with any issuance of FHN common stock which may be required as a result of share based compensation awards. FHN historically obtains authorization from the Board of Directors to repurchase any
shares that may be issued at the time a plan is approved or amended. These authorizations are automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation
of excess equity, legal, regulatory, and U.S. Treasury requirements, and prudent capital management. FHN does not currently expect to repurchase a material number of shares related to the plans during the next annual period.
Stock option plans. FHN issued non-qualified stock options to employees under various plans, which provided for the issuance of FHN common stock at a price equal to the higher of the closing price or its fair market value at the date of grant. All options vest within 3 to 4 years and expire 7 years or 10 years
from the date of grant. A deferral program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of compensation. Options that were part of compensation deferral
prior to January 2, 2004, expire 20 years from the date of grant. Stock options granted after January 2, 2004, which are part of the compensation deferral, expire 10 years from the date of grant. FHN did not grant any stock options during 2009.
The stock option plan includes various antidilutive provisions in the event the value of awards become diminished from several factors. In 2008, FHN began paying quarterly stock dividends in lieu of quarterly cash dividends. Stock dividends increase the number of shares outstanding, thereby decreasing the
compensation value of the equity award. Consequently, the shares and option prices reported in the following tables have been proportionately adjusted to reflect the estimated economic effect of all dividends distributed in common stock effective through January 1, 2010. For administrative reasons, outstanding
options have not been formally adjusted at this time; however, in most cases, awards will be adjusted to provide the economic and dilutive effect as an adjustment if and when affected options are exercised. The Black Scholes Fair Value of the stock options and compensation expense are not affected.
122
FIRST HORIZON NATIONAL CORPORATION
Note 20 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans (continued)
The summary of stock option plans activity for the year ended December 31, 2009, is shown below:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Weighted Average Exercise Price |
|
Weighted Average Remaining Contractual Term (years) |
|
Aggregate Intrinsic Value (thousands) |
|
January 1, 2009 |
|
|
|
16,237,611 |
|
|
|
$ |
|
29.09 |
|
|
|
|
|
Options exercised |
|
|
|
(394 |
) |
|
|
|
|
7.88 |
|
|
|
|
|
Options forfeited |
|
|
|
(189,763 |
) |
|
|
|
|
26.51 |
|
|
|
|
|
Options expired |
|
|
|
(2,703,020 |
) |
|
|
|
|
31.47 |
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
13,344,434 |
|
|
|
|
28.61 |
|
|
|
|
4.52 |
|
|
|
$ |
|
564 |
|
|
Options exercisable |
|
|
|
11,028,021 |
|
|
|
|
28.70 |
|
|
|
|
4.60 |
|
|
|
|
356 |
|
Options expected to vest |
|
|
|
2,220,800 |
|
|
|
|
28.56 |
|
|
|
|
4.13 |
|
|
|
|
192 |
|
|
The total intrinsic value of options exercised during 2009 was immaterial, however, the total intrinsic value of options exercised during 2008 and 2007, was $.3 million and $18.6 million, respectively. On December 31, 2009, there was $1.9 million of unrecognized compensation cost related to nonvested stock
options. That cost is expected to be recognized over a weighted-average period of 1.54 years.
The following data summarizes information about stock options granted during 2008 and 2007:
|
|
|
|
|
|
|
Number Granted |
|
Weighted Average Fair Value per Option at Grant Date |
|
2008: |
|
|
|
|
Options granted |
|
|
|
884,723 |
|
|
|
$ |
|
1.53 |
|
|
2007: |
|
|
|
|
Options granted |
|
|
|
2,160,478 |
|
|
|
$ |
|
4.67 |
|
|
FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted in 2008 and 2007, with the following assumptions:
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
Expected dividend yield |
|
5.97% |
|
4.99% |
|
|
Expected weighted-average lives of options granted |
|
5.07 years |
|
5.44 years |
|
|
Expected weighted-average volatility |
|
25.89% |
|
17.45% |
|
|
Expected volatility range |
|
24.10% 42.60% |
|
16.50% 23.30% |
|
|
Risk-free interest rates range |
|
2.80% 3.32% |
|
4.54% 4.85% |
|
|
|
Expected lives of options granted are determined based on the vesting period, historical exercise patterns and contractual term of the options. Expected volatility is estimated using average of daily high and low stock prices. Expected volatility assumptions are determined over the period of the expected lives of the
options.
Dividend reinvestment plan. The Dividend Reinvestment and Stock Purchase Plan authorizes the sale of FHNs common stock from shares acquired on the open market to shareholders who choose to invest all or a portion of their cash dividends or make optional cash payments of $25 to $10,000 per quarter
without paying commissions. The price of shares purchased on the open market is the average price paid.
123
FIRST HORIZON NATIONAL CORPORATION
Note 21 q Business Segment Information
FHN has five business segments: Regional Banking, Capital Markets, National Specialty Lending, Mortgage Banking, and Corporate. The Regional Banking segment offers financial products and services, including traditional lending and deposit taking, to retail and commercial customers in Tennessee and
surrounding markets. Additionally, Regional Banking provides investments, insurance, financial planning, trust services and asset management, credit card, cash management, and check clearing services. The Capital Markets segment consists of traditional capital markets securities activities, loan sales, portfolio
advisory, derivative sales, and correspondent banking. The operating results of Capital Markets institutional equity research business, FTN ECM, are included in Capital Markets discontinued operations, net of tax, line item for all periods presented. Restructuring, repositioning, and efficiency charges from this
business are included in discontinued operations within the Corporate segment. The National Specialty Lending segment consists of traditional consumer and construction lending activities in other national markets. The Mortgage Banking segment consists of core mortgage banking elements including originations
and servicing and the associated ancillary revenues related to these businesses. In August 2008, FHN completed the divestiture of certain mortgage banking operations. FHN continues to originate loans in and around the Tennessee banking footprint and to service the remaining servicing portfolio. The Corporate
segment consists of net charges related to restructuring, repositioning, and efficiency initiatives; gains on the repurchase of debt, unallocated corporate expenses, expense on subordinated debt issuances and preferred stock, bank-owned life insurance, unallocated interest income associated with excess equity, net
impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management, low income housing investment activities, and venture capital.
Periodically, FHN adapts its segments to reflect changes in expense allocations among segments. In second quarter 2009, FHN reviewed funds transfer pricing methodologies and cost allocations used to determine segment performance. As a result of this review, certain of these methodologies were revised
affecting all segments. Additionally, activities related to Low Income Housing Investments were moved from Regional Banking to Corporate. For comparability, previously reported items have been revised to reflect these changes. Total revenue, expense, and asset levels reflect those which are specifically identifiable
or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, they are to an extent subjective. This assignment and allocation has been consistently applied for all periods presented. The following table reflects the amounts of
consolidated revenue, expense, tax, and assets for each segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Consolidated |
|
Net interest income |
|
|
$ |
|
776,468 |
|
|
|
$ |
|
895,082 |
|
|
|
$ |
|
940,642 |
|
|
|
Provision for loan losses |
|
|
|
880,000 |
|
|
|
|
1,080,000 |
|
|
|
|
272,765 |
|
|
|
Noninterest income |
|
|
|
1,233,531 |
|
|
|
|
1,450,418 |
|
|
|
|
806,812 |
|
|
|
Noninterest expense |
|
|
|
1,550,533 |
|
|
|
|
1,594,342 |
|
|
|
|
1,768,362 |
|
|
|
|
|
|
Loss before income taxes |
|
|
|
(420,534 |
) |
|
|
|
|
(328,842 |
) |
|
|
|
|
(293,673 |
) |
|
|
|
Benefit for income taxes |
|
|
|
(174,945 |
) |
|
|
|
|
(154,405 |
) |
|
|
|
|
(139,909 |
) |
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
(245,589 |
) |
|
|
|
|
(174,437 |
) |
|
|
|
|
(153,764 |
) |
|
|
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(12,846 |
) |
|
|
|
|
(3,534 |
) |
|
|
|
|
2,453 |
|
|
|
|
|
|
Net loss |
|
|
$ |
|
(258,435 |
) |
|
|
|
$ |
|
(177,971 |
) |
|
|
|
$ |
|
(151,311 |
) |
|
|
|
|
|
|
Average assets |
|
|
$ |
|
28,147,808 |
|
|
|
$ |
|
34,422,678 |
|
|
|
$ |
|
38,175,420 |
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
|
81,465 |
|
|
|
$ |
|
97,111 |
|
|
|
$ |
|
130,517 |
|
|
|
Expenditures for long-lived assets |
|
|
|
21,180 |
|
|
|
|
23,666 |
|
|
|
|
33,539 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
124
FIRST HORIZON NATIONAL CORPORATION
Note 21 q Business Segment Information (continued)
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Regional |
|
Net interest income |
|
|
$ |
|
498,262 |
|
|
|
$ |
|
506,364 |
|
|
|
$ |
|
556,984 |
|
Banking |
|
Provision for loan losses |
|
|
|
255,457 |
|
|
|
|
328,767 |
|
|
|
|
62,629 |
|
|
|
Noninterest income |
|
|
|
318,521 |
|
|
|
|
350,639 |
|
|
|
|
367,412 |
|
|
|
Noninterest expense |
|
|
|
661,313 |
|
|
|
|
609,933 |
|
|
|
|
611,562 |
|
|
|
|
|
|
Income/(loss) before income taxes |
|
|
|
(99,987 |
) |
|
|
|
|
(81,697 |
) |
|
|
|
|
250,205 |
|
|
|
Provision/(benefit) for income taxes |
|
|
|
(38,146 |
) |
|
|
|
|
(31,119 |
) |
|
|
|
|
94,058 |
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
|
|
(61,841 |
) |
|
|
|
|
(50,578 |
) |
|
|
|
|
156,147 |
|
|
|
Income from discontinued operations, net of tax |
|
|
|
547 |
|
|
|
|
883 |
|
|
|
|
4,766 |
|
|
|
|
|
|
Net income/(loss) |
|
|
$ |
|
(61,294 |
) |
|
|
|
$ |
|
(49,695 |
) |
|
|
|
$ |
|
160,913 |
|
|
|
|
|
|
Average assets |
|
|
$ |
|
10,977,977 |
|
|
|
$ |
|
11,910,877 |
|
|
|
$ |
|
12,237,510 |
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
|
42,962 |
|
|
|
$ |
|
44,228 |
|
|
|
$ |
|
52,782 |
|
|
|
Expenditures for long-lived assets |
|
|
|
16,355 |
|
|
|
|
14,663 |
|
|
|
|
19,322 |
|
|
Capital Markets |
|
Net interest income |
|
|
$ |
|
90,641 |
|
|
|
$ |
|
79,514 |
|
|
|
$ |
|
55,306 |
|
|
|
Provision for loan losses |
|
|
|
113,533 |
|
|
|
|
80,112 |
|
|
|
|
8,097 |
|
|
|
Noninterest income |
|
|
|
640,016 |
|
|
|
|
493,442 |
|
|
|
|
299,018 |
|
|
|
Noninterest expense |
|
|
|
416,204 |
|
|
|
|
372,705 |
|
|
|
|
272,496 |
|
|
|
|
|
|
Income before income taxes |
|
|
|
200,920 |
|
|
|
|
120,139 |
|
|
|
|
73,731 |
|
|
|
Provision for income taxes |
|
|
|
75,394 |
|
|
|
|
44,736 |
|
|
|
|
27,432 |
|
|
|
|
|
|
Income from continuing operations |
|
|
|
125,526 |
|
|
|
|
75,403 |
|
|
|
|
46,299 |
|
|
|
Loss from discontinued operations, net of tax |
|
|
|
(4,127 |
) |
|
|
|
|
(3,968 |
) |
|
|
|
|
(1,728 |
) |
|
|
|
|
|
|
Net income |
|
|
$ |
|
121,399 |
|
|
|
$ |
|
71,435 |
|
|
|
$ |
|
44,571 |
|
|
|
|
|
|
Average assets |
|
|
$ |
|
4,078,204 |
|
|
|
$ |
|
5,143,964 |
|
|
|
$ |
|
5,746,595 |
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
|
11,389 |
|
|
|
$ |
|
12,323 |
|
|
|
$ |
|
14,656 |
|
|
|
Expenditures for long-lived assets |
|
|
|
1,716 |
|
|
|
|
2,629 |
|
|
|
|
1,238 |
|
|
National Specialty |
|
Net interest income |
|
|
$ |
|
122,779 |
|
|
|
$ |
|
189,694 |
|
|
|
$ |
|
243,900 |
|
Lending |
|
Provision for loan losses |
|
|
|
502,414 |
|
|
|
|
642,002 |
|
|
|
|
194,436 |
|
|
|
Noninterest income/(loss) |
|
|
|
(8,791 |
) |
|
|
|
|
(10,485 |
) |
|
|
|
|
21,265 |
|
|
|
Noninterest expense |
|
|
|
134,237 |
|
|
|
|
106,964 |
|
|
|
|
138,229 |
|
|
|
|
|
|
Loss before income taxes |
|
|
|
(522,663 |
) |
|
|
|
|
(569,757 |
) |
|
|
|
|
(67,500 |
) |
|
|
|
Benefit for income taxes |
|
|
|
(196,939 |
) |
|
|
|
|
(214,684 |
) |
|
|
|
|
(25,434 |
) |
|
|
|
|
|
|
Net loss |
|
|
$ |
|
(325,724 |
) |
|
|
|
$ |
|
(355,073 |
) |
|
|
|
$ |
|
(42,066 |
) |
|
|
|
|
|
|
Average assets |
|
|
$ |
|
6,340,241 |
|
|
|
$ |
|
8,543,949 |
|
|
|
$ |
|
9,721,005 |
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
|
25,107 |
|
|
|
$ |
|
35,453 |
|
|
|
$ |
|
43,549 |
|
|
|
Expenditures for long-lived assets |
|
|
|
919 |
|
|
|
|
612 |
|
|
|
|
795 |
|
|
Mortgage Banking |
|
Net interest income |
|
|
$ |
|
35,535 |
|
|
|
$ |
|
106,210 |
|
|
|
$ |
|
110,938 |
|
|
|
Provision/(benefit) for loan losses |
|
|
|
8,596 |
|
|
|
|
29,119 |
|
|
|
|
(69 |
) |
|
|
|
Noninterest income |
|
|
|
247,306 |
|
|
|
|
547,487 |
|
|
|
|
78,639 |
|
|
|
Noninterest expense |
|
|
|
238,648 |
|
|
|
|
429,255 |
|
|
|
|
503,898 |
|
|
|
|
|
|
Income/(loss) before income taxes |
|
|
|
35,597 |
|
|
|
|
195,323 |
|
|
|
|
(314,252 |
) |
|
|
|
Provision/(benefit) for income taxes |
|
|
|
13,413 |
|
|
|
|
73,598 |
|
|
|
|
(118,410 |
) |
|
|
|
|
|
|
Net income/(loss) |
|
|
$ |
|
22,184 |
|
|
|
$ |
|
121,725 |
|
|
|
$ |
|
(195,842 |
) |
|
|
|
|
|
|
Average assets |
|
|
$ |
|
1,973,701 |
|
|
|
$ |
|
4,660,750 |
|
|
|
$ |
|
6,091,017 |
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
|
(464 |
) |
|
|
|
$ |
|
2,664 |
|
|
|
$ |
|
14,883 |
|
|
|
Expenditures for long-lived assets |
|
|
|
31 |
|
|
|
|
687 |
|
|
|
|
7,667 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
125
FIRST HORIZON NATIONAL CORPORATION
Note 21 q Business Segment Information (continued)
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Corporate |
|
Net interest income/(loss) |
|
|
$ |
|
29,251 |
|
|
|
$ |
|
13,300 |
|
|
|
$ |
|
(26,486 |
) |
|
|
|
Provision for loan losses |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
7,672 |
|
|
|
Noninterest income |
|
|
|
36,479 |
|
|
|
|
69,335 |
|
|
|
|
40,478 |
|
|
|
Noninterest expense |
|
|
|
100,131 |
|
|
|
|
75,485 |
|
|
|
|
242,177 |
|
|
|
|
|
|
Income/(loss) before income taxes |
|
|
|
(34,401 |
) |
|
|
|
|
7,150 |
|
|
|
|
(235,857 |
) |
|
|
|
Benefit for income taxes |
|
|
|
(28,667 |
) |
|
|
|
|
(26,936 |
) |
|
|
|
|
(117,555 |
) |
|
|
|
|
|
|
Income/(loss) from continuing operations |
|
|
|
(5,734 |
) |
|
|
|
|
34,086 |
|
|
|
|
(118,302 |
) |
|
|
|
Loss from discontinued operations, net of tax |
|
|
|
(9,266 |
) |
|
|
|
|
(449 |
) |
|
|
|
|
(585 |
) |
|
|
|
|
|
|
Net income/(loss) |
|
|
$ |
|
(15,000 |
) |
|
|
|
$ |
|
33,637 |
|
|
|
$ |
|
(118,887 |
) |
|
|
|
|
|
|
Average assets |
|
|
$ |
|
4,777,685 |
|
|
|
$ |
|
4,163,138 |
|
|
|
$ |
|
4,379,293 |
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
|
2,471 |
|
|
|
$ |
|
2,443 |
|
|
|
$ |
|
4,647 |
|
|
|
Expenditures for long-lived assets |
|
|
|
2,159 |
|
|
|
|
5,075 |
|
|
|
|
4,517 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
126
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities
Effective January 1, 2008, FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes upon adoption of the Financial Instruments Topic of the FASB Accounting Standards Codification (ASC 825). FHN determined that the election reduced certain
timing differences and better matched changes in the value of such loans with changes in the value of derivatives used as economic hedges for these assets. No transition adjustment was required upon adoption of ASC 825-10-50 as FHN continued to account for mortgage loans held for sale which were originated
prior to 2008 at the lower of cost or market value. Mortgage loans originated for sale are included in loans held for sale on the Consolidated Statements of Condition. Other interests retained in relation to residential loan sales and securitizations are included in trading securities on the Consolidated Statements of
Condition. Additionally, effective January 1, 2008, FHN adopted the FASB Accounting Standards Codification Topic for Fair Value Measurements and Disclosures (ASC 820) for existing fair value measurement requirements related to financial assets and liabilities as well as to non-financial assets and liabilities which
are re-measured at least annually. Effective January 1, 2009, FHN adopted the provisions of ASC 820-10-50 for existing fair value measurement requirements related to non-financial assets and liabilities which are recognized at fair value on a non-recurring basis.
FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to
minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:
|
|
|
|
|
Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets. |
|
|
|
|
|
Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
|
|
|
|
|
Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option
pricing models, discounted cash flow models, and similar techniques.
|
Derivatives in an asset position are included within Other Assets while derivatives in a liability position are included within Other Liabilities. Derivative positions constitute the only recurring Level 3 measurements within Other Assets and Other Liabilities.
127
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Trading securities Capital Markets: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
$ |
|
- |
|
|
|
$ |
|
92,387 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
92,387 |
|
Government agency issued MBS |
|
|
|
- |
|
|
|
|
175,698 |
|
|
|
|
- |
|
|
|
|
175,698 |
|
Government agency issued CMO |
|
|
|
- |
|
|
|
|
35,074 |
|
|
|
|
- |
|
|
|
|
35,074 |
|
Other U.S. government agencies |
|
|
|
- |
|
|
|
|
92,842 |
|
|
|
|
- |
|
|
|
|
92,842 |
|
States and municipalities |
|
|
|
- |
|
|
|
|
18,961 |
|
|
|
|
- |
|
|
|
|
18,961 |
|
Corporate and other debt |
|
|
|
- |
|
|
|
|
217,016 |
|
|
|
|
34 |
|
|
|
|
217,050 |
|
Equity, mutual funds and other |
|
|
|
- |
|
|
|
|
1,778 |
|
|
|
|
12 |
|
|
|
|
1,790 |
|
|
Total trading securities Capital Markets |
|
|
|
- |
|
|
|
|
633,756 |
|
|
|
|
46 |
|
|
|
|
633,802 |
|
|
Trading securities Mortgage Banking |
|
|
|
- |
|
|
|
|
10,013 |
|
|
|
|
56,086 |
|
|
|
|
66,099 |
|
Loans held for sale |
|
|
|
- |
|
|
|
|
23,919 |
|
|
|
|
206,227 |
|
|
|
|
230,146 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
|
- |
|
|
|
|
48,129 |
|
|
|
|
- |
|
|
|
|
48,129 |
|
Government agency issued MBS |
|
|
|
- |
|
|
|
|
1,000,077 |
|
|
|
|
- |
|
|
|
|
1,000,077 |
|
Government agency issued CMO |
|
|
|
- |
|
|
|
|
1,189,430 |
|
|
|
|
- |
|
|
|
|
1,189,430 |
|
Other U.S. government agencies |
|
|
|
- |
|
|
|
|
20,472 |
|
|
|
|
97,673 |
|
|
|
|
118,145 |
|
States and municipalities |
|
|
|
- |
|
|
|
|
42,900 |
|
|
|
|
1,500 |
|
|
|
|
44,400 |
|
Corporate and other debt |
|
|
|
696 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
696 |
|
Equity, mutual funds and other |
|
|
|
35,361 |
|
|
|
|
44,016 |
|
|
|
|
15,743 |
|
|
|
|
95,120 |
|
|
Total securities available for sale |
|
|
|
36,057 |
|
|
|
|
2,345,024 |
|
|
|
|
114,916 |
|
|
|
|
2,495,997 |
|
|
Mortgage servicing rights |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
302,611 |
|
|
|
|
302,611 |
|
Other assets |
|
|
|
25,337 |
|
|
|
|
248,628 |
|
|
|
|
- |
|
|
|
|
273,965 |
|
|
Total assets |
|
|
$ |
|
61,394 |
|
|
|
$ |
|
3,261,340 |
|
|
|
$ |
|
679,886 |
|
|
|
$ |
|
4,002,620 |
|
|
Trading liabilities Capital Markets: |
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
$ |
|
- |
|
|
|
$ |
|
104,087 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
104,087 |
|
Government agency issued MBS |
|
|
|
- |
|
|
|
|
1,952 |
|
|
|
|
- |
|
|
|
|
1,952 |
|
Government agency issued CMO |
|
|
|
- |
|
|
|
|
8 |
|
|
|
|
- |
|
|
|
|
8 |
|
Other U.S. Government agencies |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Corporate and other debt |
|
|
|
- |
|
|
|
|
187,340 |
|
|
|
|
- |
|
|
|
|
187,340 |
|
|
Total trading liabilities Capital Markets |
|
|
|
- |
|
|
|
|
293,387 |
|
|
|
|
- |
|
|
|
|
293,387 |
|
|
Other short-term borrowings and commercial paper |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
39,662 |
|
|
|
|
39,662 |
|
Other liabilities |
|
|
|
4,929 |
|
|
|
|
174,493 |
|
|
|
|
- |
|
|
|
|
179,422 |
|
|
Total liabilities |
|
|
$ |
|
4,929 |
|
|
|
$ |
|
467,880 |
|
|
|
$ |
|
39,662 |
|
|
|
$ |
|
512,471 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Trading securities |
|
|
$ |
|
1,113 |
|
|
|
$ |
|
791,111 |
|
|
|
$ |
|
153,542 |
|
|
|
$ |
|
945,766 |
|
Loans held for sale |
|
|
|
- |
|
|
|
|
257,622 |
|
|
|
|
11,330 |
|
|
|
|
268,952 |
|
Securities available for sale |
|
|
|
41,268 |
|
|
|
|
2,777,192 |
|
|
|
|
137,147 |
|
|
|
|
2,955,607 |
|
Mortgage servicing rights |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
376,844 |
|
|
|
|
376,844 |
|
Other assets |
|
|
|
27,012 |
|
|
|
|
575,839 |
|
|
|
|
245 |
|
|
|
|
603,096 |
|
|
Total assets |
|
|
$ |
|
69,393 |
|
|
|
$ |
|
4,401,764 |
|
|
|
$ |
|
679,108 |
|
|
|
$ |
|
5,150,265 |
|
|
Trading liabilities |
|
|
$ |
|
126 |
|
|
|
$ |
|
359,376 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
359,502 |
|
Other short-term borrowings and commercial paper |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
27,957 |
|
|
|
|
27,957 |
|
Other liabilities |
|
|
|
557 |
|
|
|
|
261,866 |
|
|
|
|
12 |
|
|
|
|
262,435 |
|
|
Total liabilities |
|
|
$ |
|
683 |
|
|
|
$ |
|
621,242 |
|
|
|
$ |
|
27,969 |
|
|
|
$ |
|
649,894 |
|
|
128
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
Changes in Recurring Level 3 Fair Value Measurements
In first quarter 2009, FHN changed the fair value methodology for certain loans held for sale. The methodology change had a minimal effect on the valuation of the applicable loans. Consistent with this change, the applicable amounts are presented as a transfer into Level 3 loans held for sale in the following
rollforward for the twelve month period ended December 31, 2009. See Determination of Fair Value for a detailed discussion of the changes in valuation methodology.
In third quarter 2009, FHN reviewed the allocation of fair value between MSR and excess interest from prior first lien loan sales and securitizations. As a result, $11.1 million was reclassified from trading securities to MSR within level 3 assets measured at fair value on a recurring basis.
In third quarter 2008, FHN revised its methodology for valuing hedges of MSR and excess interest that were retained from prior securitizations. Consistent with this change, the applicable amounts are presented as a transfer out of net derivative assets and liabilities in the following rollforward for the twelve month
period ended December 31, 2008. See Determination of Fair Value for a detailed discussion of the changes in valuation methodology.
129
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Twelve Months Ended December 31, 2009 |
|
Trading securities (a) |
|
Loans held for sale |
|
Securities available for sale |
|
Mortgage servicing rights, net |
|
Net derivative assets and liabilities |
|
Other short-term borrowings and commercial paper |
|
Investment portfolio |
|
Venture Capital |
|
Balance on December 31, 2008 |
|
|
$ |
|
153,542 |
|
|
|
$ |
|
11,330 |
|
|
|
$ |
|
111,840 |
|
|
|
$ |
|
25,307 |
|
|
|
$ |
|
376,844 |
|
|
|
$ |
|
233 |
|
|
|
$ |
|
27,957 |
|
Total net gains/(losses) included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
55,342 |
|
|
|
|
(10,384 |
) |
|
|
|
- |
|
|
|
|
(2,252 |
) |
|
|
|
|
67,817 |
|
|
|
|
- |
|
|
|
|
11,705 |
|
Other comprehensive income |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
3,812 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Purchases, sales, issuances, and settlements, net |
|
|
|
(141,675 |
) |
|
|
|
|
(36,265 |
) |
|
|
|
(16,479 |
) |
|
|
|
|
(7,312 |
) |
|
|
|
|
(153,127 |
) |
|
|
|
|
(233 |
) |
|
|
|
|
- |
|
Net transfers into/(out of) Level 3 |
|
|
|
(11,077 |
) |
|
|
|
|
241,546 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
11,077 |
|
|
|
|
- |
|
|
|
|
- |
|
|
Balance on December 31, 2009 |
|
|
$ |
|
56,132 |
|
|
|
$ |
|
206,227 |
|
|
|
$ |
|
99,173 |
|
|
|
$ |
|
15,743 |
|
|
|
$ |
|
302,611 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
39,662 |
|
|
|
Net unrealized gains/(losses) included in net income |
|
|
$ |
|
41,148 |
(b) |
|
|
|
$ |
|
(10,384 |
)(c) |
|
|
$ |
|
- |
|
|
|
$ |
|
(2,252 |
)(d) |
|
|
|
$ |
|
62,370 |
(e) |
|
|
|
$ |
|
- |
|
|
|
$ |
|
11,705 |
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Twelve Months Ended December 31, 2008 |
|
Trading securities |
|
Loans held for sale |
|
Securities available for sale |
|
Mortgage servicing rights, net |
|
Net derivative assets and liabilities |
|
Other short-term borrowings and commercial paper |
|
Balance on December 31, 2007 |
|
|
$ |
|
476,404 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
159,301 |
|
|
|
$ |
|
1,159,820 |
|
|
|
$ |
|
81,517 |
|
|
|
$ |
|
- |
|
Total net gains/(losses) included in: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
(109,232 |
) |
|
|
|
|
(2,551 |
) |
|
|
|
|
303 |
|
|
|
|
(429,854 |
) |
|
|
|
|
146,737 |
|
|
|
|
(34,978 |
) |
Other comprehensive income |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(3,641 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
Purchases, sales, issuances, and settlements, net |
|
|
|
(235,569 |
) |
|
|
|
|
(2,711 |
) |
|
|
|
|
(18,816 |
) |
|
|
|
|
(353,122 |
) |
|
|
|
|
(119,926 |
) |
|
|
|
|
62,935 |
|
Net transfers into/(out of) Level 3 |
|
|
|
21,939 |
|
|
|
|
16,592 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(108,095 |
) |
|
|
|
|
- |
|
|
Balance on December 31, 2008 |
|
|
$ |
|
153,542 |
|
|
|
$ |
|
11,330 |
|
|
|
$ |
|
137,147 |
|
|
|
$ |
|
376,844 |
|
|
|
$ |
|
233 |
|
|
|
$ |
|
27,957 |
|
|
|
Net unrealized gains/(losses) included in net income |
|
|
$ |
|
(172,366 |
)(f) |
|
|
$ |
|
(10,742 |
)(c) |
|
|
$ |
|
303 |
(d) |
|
|
$ |
|
(328,112 |
)(g) |
|
|
$ |
|
72 |
(c) |
|
|
|
$ |
|
(19,974 |
)(c) |
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
Primarily represents Mortgage Banking trading securities. Capital Markets Level 3 trading securities are not significant. |
|
(b) |
|
|
|
Includes $(2.2) million included in Capital Markets noninterest income, $47.6 million included in Mortgage Banking noninterest income, and $(4.3) million included in other income and commissions. |
|
(c) |
|
|
|
Included in Mortgage Banking noninterest income. |
|
(d) |
|
|
|
Represents recognized gains and losses attributable to venture capital investments classified within securities available for sale that are included in Securities gains/(losses) in noninterest income. |
|
(e) |
|
|
|
Includes $67.8 million included in Mortgage Banking noninterest income and $(5.4) million included in other income and commissions. |
|
(f) |
|
|
|
Includes $(23.8) million included in Capital Markets noninterest income, $(138.5) million included in Mortgage Banking noninterest income, and $(10.1) million included in other income and commissions. |
|
(g) |
|
|
|
Includes $(312.9) million included in Mortgage Banking noninterest income and $(15.2) million included in other income and commissions.
|
130
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
Nonrecurring Fair Value Measurements
From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of LOCOM accounting or write-downs of individual assets. For assets measured at fair value on a
nonrecurring basis that were still held on the balance sheet at December 31, 2009 and 2008, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment, the related carrying value, and the fair value adjustments recorded during the respective periods.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Carrying value at December 31, 2009 |
|
Twelve Months Ended December 31, 2009 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Total losses/(gains) |
|
Loans held for sale |
|
|
$ |
|
- |
|
|
|
$ |
|
15,753 |
|
|
|
$ |
|
21,829 |
|
|
|
$ |
|
37,582 |
|
|
|
$ |
|
(1,716 |
) |
|
Securities available for sale |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
516 |
(c) |
|
Loans, net of unearned income (a) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
402,007 |
|
|
|
|
402,007 |
|
|
|
|
287,866 |
|
Real estate acquired by foreclosure (b) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
125,190 |
|
|
|
|
125,190 |
|
|
|
|
34,924 |
|
Other assets (d) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
108,247 |
|
|
|
|
108,247 |
|
|
|
|
8,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
330,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Carrying value at December 31, 2008 |
|
Twelve Months Ended December 31, 2008 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Total losses/(gains) |
|
Loans held for sale |
|
|
$ |
|
- |
|
|
|
$ |
|
78,739 |
|
|
|
$ |
|
38,153 |
|
|
|
$ |
|
116,892 |
|
|
|
$ |
|
27,503 |
|
Securities available for sale |
|
|
|
- |
|
|
|
|
1,117 |
|
|
|
|
- |
|
|
|
|
1,117 |
|
|
|
|
1,897 |
(c) |
|
Loans, net of unearned income (a) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
414,902 |
|
|
|
|
414,902 |
|
|
|
|
198,485 |
|
Other assets (d) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
113,832 |
|
|
|
|
113,832 |
|
|
|
|
9,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
237,114 |
|
|
|
(a) |
|
|
|
Represents carrying value of loans for which adjustments are based on the appraised value of the collateral. Writedowns on these loans are recognized as part of provision. |
|
(b) |
|
|
|
Represents the fair value and related losses of foreclosed properties that were measured subsequent to their initial classification as foreclosed assets. |
|
(c) |
|
|
|
Represents recognition of other than temporary impairment for cost method investments classified within securities available for sale. |
|
(d) |
|
|
|
Represents low income housing investments.
|
In 2009, FHN recognized goodwill impairment of $14.3 million related to the disposition of FTN ECM. In accordance with accounting requirements, FHN allocated a portion of the goodwill from the applicable reporting unit to the asset group held for disposal in determining the carrying value of the disposal group.
In determining the amount of impairment, FHN compared the carrying value of the disposal group to the estimated value of the contracted sale price, which primarily included observable inputs in the form of financial asset values but which also included certain non-observable inputs related to the estimated values
of post-transaction contingencies. Thus, this measurement was considered a Level 3 valuation. Impairment of goodwill was recognized for the excess of the carrying amount over the fair value of the disposal group.
In first quarter 2008, FHN recognized a lower of cost or market reduction in value of $36.2 million on its warehouse of trust preferred loans, which was classified within level 3 for loans held for sale at March 31, 2008. The determination of estimated market value for the warehouse was based on a hypothetical
securitization transaction for the warehouse as a whole. FHN used observable data related to prior securitization transactions as well as changes in credit spreads in the collateralized debt obligation (CDO) market since the most recent transaction. FHN also incorporated significant internally developed assumptions
within its valuation of the warehouse, including estimated prepayments and estimated defaults. In accordance with ASC 820, FHN excluded transaction costs related to the hypothetical securitization in determining fair value.
In first quarter 2008, FHN recognized a lower of cost or market reduction in value of $17.0 million relating to mortgage warehouse loans. Approximately $10.5 million was attributable to increased delinquencies or aging of
131
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
loans. The market values for these loans were estimated using historical sales prices for these type loans, adjusted for incremental price concessions that a third party investor is assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions were based on published
information about actual and projected deteriorations in the housing market as well as changes in credit spreads. The remaining reduction in value of $6.5 million was attributable to lower investor prices, due primarily to credit spread widening. This reduction was calculated by comparing the total fair value of loans
(using the same methodology that is used for fair value option loans) to carrying value for the aggregate population of loans that were not delinquent or aged.
In second quarter 2008, FHN designated its trust preferred warehouse as held to maturity. Accordingly, these loans were excluded from loans held for sale in the nonrecurring measurements table as of December 31, 2008. In conjunction with the transfer of these loans to held to maturity status, FHN performed a
lower of cost or market analysis on the date of transfer. This analysis was based on the pricing of market transactions involving securities similar to those held in the trust preferred warehouse with consideration given, as applicable, to any differences in characteristics of the market transactions, including issuer
credit quality, call features and term. As a result of the lower of cost or market analysis, FHN determined that its existing valuation of the trust preferred warehouse was appropriate.
FHN recognized a lower of cost or market reduction in value of $8.3 million relating to mortgage warehouse loans during second quarter of 2008. Approximately $7.1 million was attributable to increased repurchases and delinquencies or aging of warehouse loans; the remaining reduction in value was attributable to
lower investor prices, due primarily to credit spread widening. The market values for these loans were estimated using historical sales prices for these types of loans, adjusted for incremental price concessions that a third party investor was assumed to require due to tightening credit markets and deteriorating
housing prices. These assumptions were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads.
FHN recognized a lower of cost or market reduction in value of $1.3 million relating to mortgage warehouse loans during third quarter of 2008. This was primarily attributable to increased repurchases and delinquencies of warehouse loans with some reduction in value attributable to lower investor prices, due
primarily to credit spread widening. The market values for these loans were estimated using historical sales prices for similar type loans, adjusted for incremental price concessions that a third party investor is assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions
were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads.
FHN recognized a lower of cost or market reduction in value of $.2 million relating to mortgage warehouse loans during fourth quarter of 2008. This was primarily attributable to increased repurchases and delinquencies of warehouse loans with some reduction in value attributable to lower investor prices, due
primarily to credit spread widening. The market values for these loans were estimated using historical sales prices for similar type loans, adjusted for incremental price concessions that a third party investor is assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions
were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads.
Fair Value Option
FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes under the Financial Instruments Topic (ASC 825). FHN determined that the election reduced certain timing differences and better matched changes in the value of such loans with changes in
the value of derivatives used as economic hedges for these assets.
In 2009 and 2008, FHN transferred certain servicing assets in transactions that did not qualify for sale treatment due to certain recourse provisions. The associated proceeds are recognized within Other Short Term Borrowings and Commercial Paper in the Consolidated Statements of Condition as of December 31,
2009 and 2008. Since the servicing assets are recognized at fair value and changes in the fair value of the related financing liabilities will exactly mirror the change in fair value of the associated servicing assets, management elected to account for the
132
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
financing liabilities at fair value. Since the servicing assets have already been delivered to the buyer, the fair value of the financing liabilities associated with the transaction does not reflect any instrument-specific credit risk.
The following table reflects the differences between the fair value carrying amount of mortgage loans held for sale measured at fair value in accordance with managements election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2009 |
|
Fair value carrying amount |
|
Aggregate unpaid principal |
|
Fair value carrying amount less aggregate unpaid principal |
|
Loans held for sale reported at fair value: |
|
|
|
|
|
|
Total loans |
|
|
$ |
|
230,146 |
|
|
|
$ |
|
277,400 |
|
|
|
$ |
|
(47,254 |
) |
|
Nonaccrual loans |
|
|
|
15,988 |
|
|
|
|
34,469 |
|
|
|
|
(18,481 |
) |
|
Loans 90 days or more past due and still accruing |
|
|
|
8,026 |
|
|
|
|
16,765 |
|
|
|
|
(8,739 |
) |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2008 |
|
Fair value carrying amount |
|
Aggregate unpaid principal |
|
Fair value carrying amount less aggregate unpaid principal |
|
Loans held for sale reported at fair value: |
|
|
|
|
|
|
Total loans |
|
|
$ |
|
268,952 |
|
|
|
$ |
|
305,303 |
|
|
|
$ |
|
(36,351 |
) |
|
Nonaccrual loans |
|
|
|
2,098 |
|
|
|
|
4,785 |
|
|
|
|
(2,687 |
) |
|
Loans 90 days or more past due and still accruing |
|
|
|
2,176 |
|
|
|
|
4,898 |
|
|
|
|
(2,722 |
) |
|
|
Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value option are included in current period earnings with
classification in the income statement line item reflected in the following table:
|
|
|
|
|
(Dollars in thousands) |
|
Twelve Months Ended December 31, 2008 |
|
2009 |
|
2008 |
|
Changes in fair value included in net income: |
|
|
|
|
Mortgage banking noninterest income |
|
|
|
|
Loans held for sale |
|
|
$ |
|
(8,236 |
) |
|
|
|
$ |
|
(21,870 |
) |
|
Other short-term borrowings and commercial paper |
|
|
|
11,705 |
|
|
|
|
(19,974 |
) |
|
Estimated changes in fair value due to credit risk (loans held for sale) |
|
|
|
(13,680 |
) |
|
|
|
|
(21,865 |
) |
|
|
For the twelve month period ended December 31, 2009 and 2008, the amounts for loans held for sale includes approximately $13.7 million and $21.9 million, respectively, of losses included in earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments
related to credit risk was determined based on both a quality adjustment for delinquencies and the full credit spread on the non-conforming loans.
Interest income on mortgage loans held for sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Statements of Income as interest on loans held for sale.
133
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
Determination of Fair Value
In accordance with ASC 820-10-35, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of
financial instruments and MSR recorded at fair value in the Consolidated Statements of Condition and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50.
Short-term financial assets. Federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with other financial institutions are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the
instrument and its expected realization.
Trading securities and trading liabilities. Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread.
Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, LIBOR and U.S. treasury curves, credit spreads, and consensus prepayment speeds. Trading loans are valued using observable inputs including current market transactions, swap
rates, mortgage rates, and consensus prepayment speeds.
Trading securities also include retained interests in prior securitizations that qualify as financial assets, which may include certificated residual interests, excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual interests represent rights to receive
earnings to the extent of excess income generated by the underlying loans. Excess interest represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are principal cash flow tranches, and interest-only strips are interest cash flow tranches. Subordinated
bonds are bonds with junior priority. All financial assets retained from a securitization are recognized on the Consolidated Statements of Condition in trading securities at fair value with realized and unrealized gains and losses included in current earnings as a component of noninterest income on the Consolidated
Statements of Income.
The fair values of the certificated residual interests and the excess interest are determined using market prices from closely comparable assets such as MSR that are tested against prices determined using a valuation model that calculates the present value of estimated future cash flows. The fair value of these
retained interests typically changes based on changes in the discount rate and differences between modeled prepayment speeds and credit losses and actual experience. In some instances, FHN retains interests in the loans it securitized by retaining certificated principal-only strips or subordinated bonds.
Subsequent to the August 2009 reduction of mortgage banking operations, FHN uses observable inputs such as trades of similar instruments, yield curves, credit spreads and consensus prepayment speeds to determine the fair value of principal only strips. Previously, FHN used the market prices from comparable
assets such as publicly traded FNMA trust principal-only strips that were adjusted to reflect the relative risk difference between readily marketable securities and privately issued securities in valuing the principal only strips. The fair value of subordinated bonds is determined using the best available market
information, which may include trades of comparable securities, independently provided spreads to other marketable securities, and published market research. Where no market information is available, the company utilizes an internal valuation model. As of December 31, 2009 and 2008, no market information
was available, and the subordinated bonds were valued using an internal model, which includes assumptions about timing, frequency and severity of loss, prepayment speeds of the underlying collateral, and the yield that a market participant would require.
Securities available for sale. Securities available for sale includes the investment portfolio accounted for as available-for-sale under ASC 320-10-25, federal bank stock holdings, short-term investments in mutual funds, and venture capital investments. Valuations of available-for-sale securities are performed using
observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates, and credit spreads. When available, broker quotes are used to support these valuations.
134
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
Stock held in the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Statements of Condition which is considered to approximate fair value. Short-term investments in mutual funds are measured at the funds reported closing net asset values. Venture capital
investments are typically measured using significant internally generated inputs including adjustments to referenced transaction values and discounted cash flows analysis.
Loans held for sale. In conjunction with the adoption of the provisions of the FASB codification update to ASC 820-10 in first quarter 2009, FHN revised its methodology for determining the fair value of certain loans within its mortgage warehouse. FHN now determines the fair value of the applicable loans using a
discounted cash flow model using observable inputs, including current mortgage rates for similar products, with adjustments for differences in loan characteristics reflected in the models discount rates. For all other loans held in the warehouse (and in prior periods for the loans converted to the discounted cash
flow methodology), the fair value of loans whose principal market is the securitization market is based on recent security trade prices for similar products with a similar delivery date, with necessary pricing adjustments to convert the security price to a loan price. Loans whose principal market is the whole loan
market are priced based on recent observable whole loan trade prices or published third party bid prices for similar product, with necessary pricing adjustments to reflect differences in loan characteristics. Typical adjustments to security prices for whole loan prices include adding the value of MSR to the security
price or to the whole loan price if the price is servicing retained, adjusting for interest in excess of (or less than) the required coupon or note rate, adjustments to reflect differences in the characteristics of the loans being valued as compared to the collateral of the security or the loan characteristics in the
benchmark whole loan trade, adding interest carry, reflecting the recourse obligation that will remain after sale, and adjusting for changes in market liquidity or interest rates if the benchmark security or loan price is not current. Additionally, loans that are delinquent or otherwise significantly aged are discounted to
reflect the less marketable nature of these loans.
The fair value of non-mortgage loans held for sale is approximated by their carrying values based on current transaction values.
Loans, net of unearned income. Loans, net of unearned income are recognized at the amount of funds advanced, less charge offs and an estimation of credit risk represented by the allowance for loan losses. The fair value estimates for disclosure purposes differentiate loans based on their financial characteristics,
such as product classification, loan category, pricing features, and remaining maturity.
The fair value of floating rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is considered to approximate book value due to the
monthly repricing for commercial and consumer loans, with the exception of floating rate 1-4 family residential mortgage loans which reprice annually and will lag movements in market rates. The fair value for floating rate 1-4 family mortgage loans is calculated by discounting future cash flows to their present value.
Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period.
Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio.
The fair value of fixed rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is estimated by discounting future cash flows to their
present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have
been applied to the fixed rate mortgage and installment loan portfolios.
Individually impaired loans are measured using either a discounted cash flow methodology or the estimated fair value of the underlying collateral less costs to sell, if the loan is considered collateral-dependent. In accordance with accounting standards, the discounted cash flow analysis utilizes the loans effective
interest rate for
135
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
discounting expected cash flow amounts. Thus, this analysis is not considered a fair value measurement in accordance with ASC 820. However, the results of this methodology are considered to approximate fair value for the applicable loans. Expected cash flows are derived from internally-developed inputs primarily
reflecting expected default rates on contractual cash flows.
For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are
based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans.
Mortgage servicing rights. FHN recognizes all classes of MSR at fair value. Since sales of MSR tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSR. As such, FHN primarily
relies on a discounted cash flow model to estimate the fair value of its MSR. This model calculates estimated fair value of the MSR using predominant risk characteristics of MSR such as interest rates, type of product (fixed vs. variable), age (new, seasoned, or moderate), agency type and other factors. FHN uses
assumptions in the model that it believes are comparable to those used by brokers and other service providers. FHN also periodically compares its estimates of fair value and assumptions with brokers, service providers, recent market activity, and against its own experience.
Derivative assets and liabilities. The fair value for forwards and futures contracts used to hedge the value of servicing assets and the mortgage warehouse are based on current transactions involving identical securities. These contracts are exchange-traded and thus have no credit risk factor assigned as the risk of
non-performance is limited to the clearinghouse used.
Valuations of other derivatives (primarily interest rate related swaps, swaptions, caps and collars) are based on inputs observed in active markets for similar instruments. Typical inputs include the LIBOR curve, option volatility, and option skew. Credit risk is mitigated for these instruments through the use of mutual
margining and master netting agreements as well as collateral posting requirements. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional factors such as customer loan grades and debt ratings.
In third quarter 2008, FHN revised its methodology for valuing hedges of MSR and excess interest that were retained from prior securitizations. FHN now determines the fair value of the interest rate derivatives used to hedge MSR and excess interests using inputs observed in active markets for similar instruments
with typical inputs including the LIBOR curve, option volatility, and option skew. Previously, fair values of these derivatives were obtained through proprietary pricing models which were compared to market value quotes received from third party broker-dealers in the derivative markets.
Real estate acquired by foreclosure. Real estate acquired by foreclosure primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is
determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal. Real estate acquired by foreclosure also includes properties acquired in compliance with HUD servicing guidelines which are carried at the estimated amount of the
underlying government assurance or guarantee.
Nonearning assets. For disclosure purposes, nonearning assets include cash and due from banks, accrued interest receivable, and capital markets receivables. Due to the short-term nature of cash and due from banks, accrued interest receivable and capital markets receivables, the fair value is approximated by the
book value.
Other assets. For disclosure purposes, other assets consist of investments in low income housing partnerships and deferred compensation assets that are considered financial assets. Investments in low income housing partnerships are written down to estimated fair value quarterly based on the estimated value of
the associated tax credits. Deferred compensation assets are recognized at fair value, which is based on quoted prices in active markets.
136
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
Defined maturity deposits. The fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all certificates of
deposit and other time deposits.
Undefined maturity deposits. In accordance with ASC 825, the fair value is approximated by the book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking interest accounts, savings accounts, and money market accounts.
Short-term financial liabilities. The fair value of federal funds purchased, securities sold under agreements to repurchase, commercial paper and other short-term borrowings is approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the
origination of the instrument and its expected realization. Commercial paper and short-term borrowings includes a liability associated with transfers of mortgage servicing rights that did not qualify for sale accounting. This liability is accounted for at elected fair value, which is measured consistent with the related
MSR, as described above.
Long-term debt. The fair value is based on quoted market prices or dealer quotes for the identical liability when traded as an asset. When pricing information for the identical liability is not available, relevant prices for similar debt instruments are used with adjustments being made to the prices obtained for
differences in characteristics of the debt instruments. If no relevant pricing information is available, the fair value is approximated by the present value of the contractual cash flows discounted by the investors yield which considers FHNs and FTBNAs debt ratings.
Other noninterest-bearing liabilities. For disclosure purposes, other noninterest-bearing liabilities include accrued interest payable and capital markets payables. Due to the short-term nature of these liabilities, the book value is considered to approximate fair value.
Loan Commitments. Fair values are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties credit standing.
Other Commitments. Fair values are based on fees charged to enter into similar agreements.
The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value
disclosures between financial institutions. Due to market illiquidity, the fair values for loans, net of unearned income, loans held for sale, and long-term debt as of December 31, 2009, and 2008, involved the use of significant internally-developed pricing assumptions for certain components of these line items. These
assumptions are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. We have not included assets and liabilities that are not financial instruments (including MSR) in the following table such as the value of long-term relationships
with deposit and trust customers, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of the company.
137
FIRST HORIZON NATIONAL CORPORATION
Note 22 q Fair Value of Assets & Liabilities (continued)
The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Statements of Condition as well as off-balance sheet commitments as of December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, 2009 |
|
December 31, 2008 |
|
Book Value |
|
Fair Value |
|
Book Value |
|
Fair Value |
|
Assets: |
|
|
|
|
|
|
|
|
Loans, net of unearned income and allowance for loan losses |
|
|
$ |
|
17,226,970 |
|
|
|
$ |
|
16,070,150 |
|
|
|
$ |
|
20,428,980 |
|
|
|
$ |
|
18,787,501 |
|
Short-term financial assets |
|
|
|
992,183 |
|
|
|
|
992,183 |
|
|
|
|
980,150 |
|
|
|
|
980,150 |
|
Trading securities |
|
|
|
699,900 |
|
|
|
|
699,900 |
|
|
|
|
945,766 |
|
|
|
|
945,766 |
|
Loans held for sale |
|
|
|
452,501 |
|
|
|
|
452,501 |
|
|
|
|
566,654 |
|
|
|
|
566,654 |
|
Securities available for sale |
|
|
|
2,694,468 |
|
|
|
|
2,694,468 |
|
|
|
|
3,125,153 |
|
|
|
|
3,125,153 |
|
Derivative assets |
|
|
|
248,628 |
|
|
|
|
248,628 |
|
|
|
|
576,131 |
|
|
|
|
576,131 |
|
Other assets |
|
|
|
133,583 |
|
|
|
|
133,583 |
|
|
|
|
140,797 |
|
|
|
|
140,797 |
|
Nonearning assets |
|
|
|
892,927 |
|
|
|
|
892,927 |
|
|
|
|
1,839,227 |
|
|
|
|
1,839,227 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Defined maturity |
|
|
$ |
|
2,455,936 |
|
|
|
$ |
|
2,522,334 |
|
|
|
$ |
|
3,676,880 |
|
|
|
$ |
|
3,761,102 |
|
Undefined maturity |
|
|
|
12,411,279 |
|
|
|
|
12,411,279 |
|
|
|
|
10,564,934 |
|
|
|
|
10,564,934 |
|
|
Total deposits |
|
|
|
14,867,215 |
|
|
|
|
14,933,613 |
|
|
|
|
14,241,814 |
|
|
|
|
14,326,036 |
|
Trading liabilities |
|
|
|
293,387 |
|
|
|
|
293,387 |
|
|
|
|
359,502 |
|
|
|
|
359,502 |
|
Short-term financial liabilities |
|
|
|
3,636,111 |
|
|
|
|
3,636,111 |
|
|
|
|
6,030,768 |
|
|
|
|
6,030,768 |
|
Long-term debt |
|
|
|
2,891,133 |
|
|
|
|
2,385,949 |
|
|
|
|
4,767,660 |
|
|
|
|
3,842,696 |
|
Derivative liabilities |
|
|
|
179,422 |
|
|
|
|
179,422 |
|
|
|
|
262,434 |
|
|
|
|
262,434 |
|
Other noninterest-bearing liabilities |
|
|
|
338,161 |
|
|
|
|
338,161 |
|
|
|
|
1,191,758 |
|
|
|
|
1,191,758 |
|
|
|
|
Contractual Amount |
|
Fair Value |
|
Contractual Amount |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Commitments: |
|
|
|
|
|
|
|
|
Loan commitments |
|
|
$ |
|
8,370,960 |
|
|
|
$ |
|
1,172 |
|
|
|
$ |
|
9,600,616 |
|
|
|
$ |
|
2,654 |
|
Standby and other commitments |
|
|
|
540,858 |
|
|
|
|
5,612 |
|
|
|
|
631,716 |
|
|
|
|
6,166 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
138
FIRST HORIZON NATIONAL CORPORATION
Note 23 q Loan Sales and Securitizations
Historically, FHN utilized loan sales and securitizations as a significant source of liquidity for its mortgage banking operations. With FHNs current focus on origination of mortgages within its regional banking footprint and the sale of national mortgage origination offices, loan sale and securitization activity has
significantly decreased. Generally, FHN no longer retains financial interests in loans it transfers to third parties. For classification purposes, all loans transferred to GSE (e.g., FNMA, FHLMC, and GNMA), including those subsequently securitized by an agency, are considered loan sales while transfers attributed to
securitizations consist solely of proprietary securitizations executed by FHN.
During 2009, 2008, and 2007, FHN transferred $1.3 billion, $19.5 billion, and $20.1 billion, respectively, of single-family residential mortgage loans in sales that were not securitizations. In 2008, these transactions primarily reflected sales to GSE. In 2009, 2008, and 2007, FHN recognized net pre-tax gains of
$15.8 million, $236.7 million, and $111.9 million, respectively, from the sale of single-family residential mortgage loans which include gains recognized on the capitalization of MSR associated with these loans.
During 2007, FHN transferred $1.1 billion of home equity loans and HELOC in sales that were not securitizations. These transactions were executed with other financial institutions. In 2007, FHN recognized net pre-tax gains of $20.3 million from these transactions, which include gains recognized on the
capitalization of MSR associated with these loans.
During 2009, 2008, and 2007, FHN transferred $12.6 million, $19.9 million, and $33.8 million, respectively, of HELOC related to proprietary securitization transactions. During 2009, 2008, and 2007, FHN recognized net pre-tax gains of $.3 million, $.4 million, and $.9 million, respectively, related to HELOC
securitizations which include gains recognized on the capitalization of MSR associated with these loans.
During 2007, FHN securitized $5.2 billion of single-family residential mortgage loans in proprietary securitization transactions and the resulting securities were sold as senior and subordinate certificates. In 2007, FHN recognized net pre-tax gains of $11.7 million from the sale of securitized single-family residential
mortgage loans that includes gains recognized on the capitalization of MSR associated with these loans.
Retained Interests
Interests retained from loan sales, including GSE securitizations, typically include MSR and excess interest. Interests retained from proprietary securitizations include MSR and various financial assets (see discussion below). MSR are initially valued at fair value and the remaining retained interests were initially valued
by allocating the remaining cost basis of the loan between the security or loan sold and the remaining retained interests based on their relative fair values at the time of sale or securitization.
In certain cases, FHN continues to service and receive servicing fees related to the transferred loans. Generally, FHN received annual servicing fees approximating .28 percent in 2009, .27 percent in 2008, and .28 percent in 2007, of the outstanding balance of underlying single-family residential mortgage loans.
FHN received annual servicing fees approximating .50 percent in 2009, 2008, and 2007, of the outstanding balance of underlying loans for HELOC and home equity loans transferred. MSR related to loans transferred and serviced by FHN, as well as MSR related to loans serviced by FHN and transferred by others,
are discussed further in Note 6 Mortgage Servicing Rights. During 2009, there were no significant additions to MSR.
Other financial assets retained in a proprietary or GSE securitization may include certificated residual interests, excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual interests represent rights to receive earnings to the extent of excess income
generated by the underlying loans. Excess interest represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are principal cash flow tranches and interest-only strips are interest cash flow tranches. Subordinated bonds are bonds with junior priority. All
financial assets retained from a securitization are recognized on the Consolidated Statements of Condition in trading securities at fair value with realized and unrealized gains
139
FIRST HORIZON NATIONAL CORPORATION
Note 23 q Loan Sales and Securitizations (continued)
and losses included in current earnings as a component of noninterest income on the Consolidated Statements of Income.
As of December 31, 2009 and 2008, $7.9 million and $57.0 million, respectively, of excess interest IO are associated with proprietary securitization transactions while the remainder is associated with loan sales. In fourth quarter 2009, FHN sold $49.0 million of excess IO. All other retained interests relate to
securitization activity.
The sensitivity of the fair value of all retained or purchased MSR to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2009 and 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands except for annual cost to service) |
|
On December 31, 2009 |
|
On December 31, 2008 |
|
First Liens |
|
Second Liens |
|
HELOC |
|
First Liens |
|
Second Liens |
|
HELOC |
|
Fair value of retained interests |
|
|
$ |
|
296,115 |
|
|
|
$ |
|
1,174 |
|
|
|
$ |
|
5,322 |
|
|
|
$ |
|
354,397 |
|
|
|
$ |
|
13,557 |
|
|
|
$ |
|
8,890 |
|
Weighted average life (in years) |
|
|
|
4.4 |
|
|
|
|
2.2 |
|
|
|
|
2.4 |
|
|
|
|
2.6 |
|
|
|
|
2.1 |
|
|
|
|
2.4 |
|
Annual prepayment rate |
|
|
|
18.7 |
% |
|
|
|
|
34.5 |
% |
|
|
|
|
30.6 |
% |
|
|
|
|
32.8 |
% |
|
|
|
|
36.5 |
% |
|
|
|
|
34.0 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(15,326 |
) |
|
|
|
$ |
|
(40 |
) |
|
|
|
$ |
|
(163 |
) |
|
|
|
$ |
|
(26,106 |
) |
|
|
|
$ |
|
(1,336 |
) |
|
|
|
$ |
|
(729 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(29,346 |
) |
|
|
|
|
(81 |
) |
|
|
|
|
(326 |
) |
|
|
|
|
(49,444 |
) |
|
|
|
|
(2,540 |
) |
|
|
|
|
(1,392 |
) |
|
Annual discount rate on servicing cash flows |
|
|
|
11.7 |
% |
|
|
|
|
16.0 |
% |
|
|
|
|
18.0 |
% |
|
|
|
|
11.1 |
% |
|
|
|
|
14.0 |
% |
|
|
|
|
18.0 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(8,678 |
) |
|
|
|
$ |
|
(19 |
) |
|
|
|
$ |
|
(96 |
) |
|
|
|
$ |
|
(7,780 |
) |
|
|
|
$ |
|
(335 |
) |
|
|
|
$ |
|
(264 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(16,800 |
) |
|
|
|
|
(38 |
) |
|
|
|
|
(192 |
) |
|
|
|
|
(15,164 |
) |
|
|
|
|
(653 |
) |
|
|
|
|
(512 |
) |
|
Annual cost to service (per loan) |
|
|
$ |
|
119 |
|
|
|
$ |
|
50 |
|
|
|
$ |
|
50 |
|
|
|
$ |
|
54 |
|
|
|
$ |
|
50 |
|
|
|
$ |
|
50 |
|
Impact on fair value of 10% adverse change |
|
|
|
(7,223 |
) |
|
|
|
|
(59 |
) |
|
|
|
|
(266 |
) |
|
|
|
|
(4,284 |
) |
|
|
|
|
(331 |
) |
|
|
|
|
(277 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(14,410 |
) |
|
|
|
|
(117 |
) |
|
|
|
|
(532 |
) |
|
|
|
|
(8,569 |
) |
|
|
|
|
(663 |
) |
|
|
|
|
(554 |
) |
|
Annual earnings on escrow |
|
|
|
2.5 |
% |
|
|
|
|
3.5 |
% |
|
|
|
|
3.5 |
% |
|
|
|
|
1.6 |
% |
|
|
|
|
0.4 |
% |
|
|
|
|
0.4 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(4,488 |
) |
|
|
|
$ |
|
(1 |
) |
|
|
|
$ |
|
(28 |
) |
|
|
|
$ |
|
(6,318 |
) |
|
|
|
$ |
|
(58 |
) |
|
|
|
$ |
|
(28 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(8,982 |
) |
|
|
|
|
(3 |
) |
|
|
|
|
(56 |
) |
|
|
|
|
(12,635 |
) |
|
|
|
|
(117 |
) |
|
|
|
|
(55 |
) |
|
|
140
FIRST HORIZON NATIONAL CORPORATION
Note 23 q Loan Sales and Securitizations (continued)
The sensitivity of the fair value of other retained interests to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2009 and 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands except for annual cost to service) |
|
Excess Interest IO |
|
Certificated PO |
|
IO |
|
Subordinated Bonds |
|
Residual Interest Certificates 2nd Liens |
|
Residual Interest Certificates HELOC |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of retained interests |
|
|
$ |
|
51,035 |
|
|
|
$ |
|
10,013 |
|
|
|
$ |
|
265 |
|
|
|
$ |
|
1,130 |
|
|
|
$ |
|
2,291 |
|
|
|
$ |
|
1,269 |
|
Weighted average life (in years) |
|
|
|
4.8 |
|
|
|
|
5.3 |
|
|
|
|
7.8 |
|
|
|
|
3.1 |
|
|
|
|
2.7 |
|
|
|
|
2.4 |
|
Annual prepayment rate |
|
|
|
15.6 |
% |
|
|
|
|
22.6 |
% |
|
|
|
|
10.3 |
% |
|
|
|
|
7.5 |
% |
|
|
|
|
26.3 |
% |
|
|
|
|
28.0 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(2,398 |
) |
|
|
|
$ |
|
(394 |
) |
|
|
|
$ |
|
(8 |
) |
|
|
|
$ |
|
(23 |
) |
|
|
|
$ |
|
(32 |
) |
|
|
|
$ |
|
(182 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(4,650 |
) |
|
|
|
|
(782 |
) |
|
|
|
|
(21 |
) |
|
|
|
|
(46 |
) |
|
|
|
|
(59 |
) |
|
|
|
|
(301 |
) |
|
Annual discount rate on residual cash flows (a) |
|
|
|
10.3 |
% |
|
|
|
|
23.8 |
% |
|
|
|
|
34.6 |
% |
|
|
|
|
225.6 |
% |
|
|
|
|
34.9 |
% |
|
|
|
|
32.9 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(2,199 |
) |
|
|
|
$ |
|
(515 |
) |
|
|
|
$ |
|
(17 |
) |
|
|
|
$ |
|
(77 |
) |
|
|
|
$ |
|
(109 |
) |
|
|
|
$ |
|
(207 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(4,204 |
) |
|
|
|
|
(1,050 |
) |
|
|
|
|
(33 |
) |
|
|
|
|
(147 |
) |
|
|
|
|
(206 |
) |
|
|
|
|
(373 |
) |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of retained interests |
|
|
$ |
|
102,657 |
|
|
|
$ |
|
13,887 |
|
|
|
$ |
|
406 |
|
|
|
$ |
|
4,637 |
|
|
|
$ |
|
3,504 |
|
|
|
$ |
|
4,717 |
|
Weighted average life (in years) |
|
|
|
2.6 |
|
|
|
|
4.8 |
|
|
|
|
8.3 |
|
|
|
|
2.0 |
|
|
|
|
2.6 |
|
|
|
|
2.3 |
|
Annual prepayment rate |
|
|
|
32.1 |
% |
|
|
|
|
49.4 |
% |
|
|
|
|
12.7 |
% |
|
|
|
|
7.1 |
% |
|
|
|
|
29.6 |
% |
|
|
|
|
27.0 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(11,019 |
) |
|
|
|
$ |
|
(498 |
) |
|
|
|
$ |
|
(12 |
) |
|
|
|
$ |
|
(211 |
) |
|
|
|
$ |
|
(37 |
) |
|
|
|
$ |
|
(397 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(20,934 |
) |
|
|
|
|
(1,127 |
) |
|
|
|
|
(22 |
) |
|
|
|
|
(258 |
) |
|
|
|
|
(70 |
) |
|
|
|
|
(751 |
) |
|
Annual discount rate on residual cash flows |
|
|
|
12.2 |
% |
|
|
|
|
30.6 |
% |
|
|
|
|
19.3 |
% |
|
|
|
|
26.3 |
% |
|
|
|
|
34.9 |
% |
|
|
|
|
33.0 |
% |
|
Impact on fair value of 10% adverse change |
|
|
$ |
|
(3,543 |
) |
|
|
|
$ |
|
(370 |
) |
|
|
|
$ |
|
(21 |
) |
|
|
|
$ |
|
(163 |
) |
|
|
|
$ |
|
(137 |
) |
|
|
|
$ |
|
(443 |
) |
|
Impact on fair value of 20% adverse change |
|
|
|
(6,897 |
) |
|
|
|
|
(781 |
) |
|
|
|
|
(40 |
) |
|
|
|
|
(291 |
) |
|
|
|
|
(259 |
) |
|
|
|
|
(826 |
) |
|
|
|
(a) |
|
|
|
For subordinated bonds, rate used is the actual bond yield.
|
These sensitivities are hypothetical and should not be considered predictive of future performance. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions cannot necessarily be extrapolated because the relationship between the change in assumption and the change in fair
value may not be linear. Also, in this table, the effect on the fair value of the retained interest caused by a particular assumption variation is calculated independently from all other assumption changes. In reality, changes in one factor may result in changes in another, which might magnify or counteract the
sensitivities. Furthermore, the estimated fair values as disclosed should not be considered indicative of future earnings on these assets.
141
FIRST HORIZON NATIONAL CORPORATION
Note 23 q Loan Sales and Securitizations (continued)
FHN uses assumptions and estimates in determining the fair value allocated to retained interests at the time of initial securitization. Generally, FHN no longer retains interests related to loan sales or securitizations. During 2009, additions to MSR were immaterial. The key economic assumptions used to measure the
fair value of MSR at the date of securitization or loan sale were as follows during 2008:
|
|
|
|
|
|
|
|
|
|
|
First Liens |
|
Second Liens |
|
HELOC |
|
|
|
2008 |
|
|
|
|
|
|
|
|
Weighted average life (in years) |
|
2.4 - 7.0 |
|
2.7 - 3.1 |
|
1.7 - 1.8 |
|
|
Annual prepayment rate |
|
11.7% - 34.7% |
|
26.0% - 30.0% |
|
43.0% - 44.0% |
|
|
Annual discount rate |
|
9.4% - 11.7% |
|
14.0% |
|
18.0% |
|
|
Annual cost to service (per loan) |
|
$52 - $69 |
|
$50 |
|
$50 |
|
|
Annual earnings on escrow |
|
1.6% - 3.8% |
|
3.8% - 5.3% |
|
5.3% |
|
|
|
There were no securitizations in which FHN retained an interest during 2009. The key economic assumptions used to measure the fair value of other retained interests at the date of securitization were as follows during 2008:
|
|
|
|
|
|
|
|
|
|
|
Excess Interest IO |
|
Certificated PO |
|
Subordinated Bond |
|
|
|
2008 |
|
|
|
|
|
|
|
|
Weighted average life (in years) |
|
4.7 - 6.1 |
|
N/A |
|
N/A |
|
|
Annual prepayment rate |
|
10.2% - 19.7% |
|
N/A |
|
N/A |
|
|
Annual discount rate |
|
11.8% |
|
N/A |
|
N/A |
|
|
|
For the years ended December 31, 2009, 2008, and 2007, cash flows received and paid related to loan sales were as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Proceeds from initial sales |
|
|
$ |
|
1,307,635 |
|
|
|
$ |
|
19,523,904 |
|
|
|
$ |
|
21,282,957 |
|
Servicing fees retained* |
|
|
|
67,940 |
|
|
|
|
161,336 |
|
|
|
|
244,901 |
|
Purchases of GNMA guaranteed mortgages |
|
|
|
18,225 |
|
|
|
|
103,436 |
|
|
|
|
160,928 |
|
Purchases of delinquent or foreclosed assets |
|
|
|
49,352 |
|
|
|
|
6,110 |
|
|
|
|
6,865 |
|
Other cash flows received on retained interests |
|
|
|
26,805 |
|
|
|
|
25,569 |
|
|
|
|
62,142 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
|
|
|
|
* Includes servicing fees on MSR associated with loan sales and purchased MSR.
|
For the years ended December 31, 2009, 2008, and 2007, cash flows received and paid related to securitizations were as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Proceeds from initial securitizations |
|
|
$ |
|
12,903 |
|
|
|
$ |
|
19,925 |
|
|
|
$ |
|
5,230,889 |
|
Servicing fees retained |
|
|
|
64,859 |
|
|
|
|
87,786 |
|
|
|
|
86,740 |
|
Purchases of delinquent or foreclosed assets |
|
|
|
- |
|
|
|
|
3,042 |
|
|
|
|
7,083 |
|
Other cash flows received on retained interests |
|
|
|
37,189 |
|
|
|
|
21,737 |
|
|
|
|
33,557 |
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
142
FIRST HORIZON NATIONAL CORPORATION
Note 23 q Loan Sales and Securitizations (continued)
As of December 31, 2009, the principal amount of loans transferred through loan sales and securitizations and other loans managed with them, the principal amount of delinquent loans, and the net credit losses during 2009 are as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Principal Amount of Loans |
|
Principal Amount of Delinquent Loans (a) |
|
Net Credit Losses (b) (c) |
|
|
|
On December 31, 2009 |
|
For the Year Ended December 31, 2009 |
Type of loan: |
|
|
|
|
|
|
Real estate residential |
|
|
$ |
|
31,893,006 |
|
|
|
$ |
|
960,307 |
|
|
|
$ |
|
504,225 |
|
|
Total loans managed or transferred (d) |
|
|
$ |
|
31,893,006 |
|
|
|
$ |
|
960,307 |
|
|
|
$ |
|
504,225 |
|
|
|
|
Loans sold (e) |
|
|
|
(23,543,925 |
) |
|
|
|
|
|
Loans held for sale (e) |
|
|
|
(331,979 |
) |
|
|
|
|
|
|
|
|
Loans held in portfolio |
|
|
$ |
|
8,017,102 |
|
|
|
|
|
|
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
Loans 90 days or more past due include $40.0 million of GNMA guaranteed. mortgages. $641.2 million of delinquent loans have been securitized while $62.0 million relate to loans HFS or previously sold. |
|
(b) |
|
|
|
Principal amount of loans securitized and sold includes $18.6 billion of loans securitized through GNMA, FNMA or FHLMC. FHN retains interests other than servicing rights on a portion of these securitized loans. No delinquency or net credit loss data is included for the loans securitized through FNMA or FHMLC because these agencies retain credit risk. The remainder of loans securitized
and sold were securitized through proprietary trusts, where FHN retained interests other than servicing rights. |
|
(c) |
|
|
|
$137.5 million associated with securitizations and $95.9 million associated with loans HFS or previously sold. |
|
(d) |
|
|
|
Transferred loans are real estate residential loans in which FHN has a retained interest other than servicing rights. |
|
(e) |
|
|
|
$4.0 billion associated with securitizations and $19.9 billion associated with loans HFS or previously sold.
|
As of December 31, 2008, the principal amount of loans transferred through loan sales and securitizations and other loans managed with them, the principal amount of delinquent loans, and the net credit losses during 2008 are as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Total Principal Amount of Loans |
|
Principal Amount of Delinquent Loans (a) |
|
Net Credit Losses (b) (c) |
|
|
|
On December 31, 2008 |
|
For the Year Ended December 31, 2008 |
Type of loan: |
|
|
|
|
|
|
Real estate residential |
|
|
$ |
|
52,422,426 |
|
|
|
$ |
|
583,066 |
|
|
|
$ |
|
220,744 |
|
|
Total loans managed or transferred (d) |
|
|
$ |
|
52,422,426 |
|
|
|
$ |
|
583,066 |
|
|
|
$ |
|
220,744 |
|
|
|
|
Loans sold (e) |
|
|
|
(43,138,126 |
) |
|
|
|
|
|
Loans held for sale (e) |
|
|
|
(408,148 |
) |
|
|
|
|
|
|
|
|
Loans held in portfolio |
|
|
$ |
|
8,876,152 |
|
|
|
|
|
|
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
|
(a) |
|
|
|
Loans 90 days or more past due include $42.3 million of GNMA guaranteed mortgages. $385.4 million of delinquent loans have been securitized while $44.7 million relate to loans HFS or previously sold. |
|
(b) |
|
|
|
Principal amount of loans securitized and sold includes $37.2 billion of loans securitized through GNMA, FNMA or FHLMC. FHN retains interests other than servicing rights on a portion of these securitized loans. No delinquency or net credit loss data is included for the loans securitized through FNMA or FHMLC because these agencies retain credit risk. The remainder of loans securitized
and sold were securitized through proprietary trusts, where FHN retained interests other than servicing rights. |
|
(c) |
|
|
|
$26.9 million associated with securitizations and $70.7 million associated with loans HFS or previously sold. |
|
(d) |
|
|
|
Transferred loans are real estate residential loans in which FHN has a retained interest other than servicing rights. |
|
(e) |
|
|
|
$4.9 billion associated with securitizations and $38.7 billion associated with loans HFS or previously sold.
|
143
FIRST HORIZON NATIONAL CORPORATION
Note 23 q Loan Sales and Securitizations (continued)
Secured Borrowings. In 2007, FTBNA executed several securitizations of retail real estate residential loans for the purpose of engaging in secondary market financing. Since the related trusts did not qualify as QSPE and since the cash flows on the loans are pledged to the holders of the trusts securities, FTBNA
recognized the proceeds as secured borrowings in accordance with the ASCs Transfers and Servicing Topic (ASC 860-10-50). On December 31, 2009, FTBNA had $654.6 million of loans net of unearned income and $650.4 million of other collateralized borrowings in its Consolidated Statements of Condition related
to these transactions. On December 31, 2008, FTBNA recognized $714.7 million of loans net of unearned income and $696.5 million of other collateralized borrowings in its Consolidated Statements of Condition related to these transactions. See Note 24 Variable Interest Entities for additional information.
In third quarter 2007, FTBNA executed a securitization of certain small issuer trust preferreds for which the underlying trust did not qualify as a QSPE under ASCs Transfers and Servicing Topic (ASC 860-10-50). Therefore, FTNBA has accounted for the funds received through the securitization as a secured
borrowing. On December 31, 2009, FTBNA had $112.5 million of loans net of unearned income, $1.7 million of trading securities, and $50.1 million of other collateralized borrowings in its Consolidated Statements of Condition related to this transaction. On December 31, 2008, FTBNA had $112.5 million of loans
net of unearned income, $1.7 million of trading securities, and $48.9 million of other collateralized borrowings in its Consolidated Statements of Condition related to this transaction. See Note 24 Variable Interest Entities for additional information.
144
FIRST HORIZON NATIONAL CORPORATION
Note 24 q Variable Interest Entities
Under the provisions of ASCs Consolidation Topic (ASC 860-10-25), FHN is deemed to be the primary beneficiary and required to consolidate a variable interest entity (VIE) if it has a variable interest that will absorb the majority of the VIEs expected losses, receive the majority of expected residual returns, or both.
A VIE exists when equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities by itself. A variable interest is a contractual, ownership or other interest that changes with changes in the fair value of the VIEs net assets or
the VIEs cash flows. Expected losses and expected residual returns are measures of variability in the expected cash flow of a VIE.
Consolidated Variable Interest Entities. In 2007 and 2006, FTBNA established several Delaware statutory trusts (Trusts), for the purpose of engaging in secondary market financing. Except for recourse due to breaches of standard representations and warranties made by FTBNA in connection with the sale of the
retail real estate residential loans by FTBNA to the Trusts, the creditors of the Trusts hold no recourse to the assets of FTBNA. Additionally, FTBNA has no contractual requirements to provide financial support to the Trusts. Since the Trusts did not qualify as QSPE, FTBNA treated the proceeds as secured
borrowings in accordance with ASC 860. FTBNA determined that the Trusts were VIEs because the holders of the equity investment at risk did not have adequate decision making ability over the trusts activities. Thus, FTBNA assessed whether it was the primary beneficiary of the associated trusts. Since there was
an overcollateralization of the Trusts, any excess of cash flows received on the transferred loans above the amounts passed through to the security holders would revert to FTBNA. Accordingly, FTBNA determined that it was the primary beneficiary of the Trusts because it absorbed a majority of the expected losses
of the Trusts.
FTBNA holds variable interests in trusts which have issued mandatorily redeemable preferred capital securities (trust preferreds) for smaller banking and insurance enterprises. FTBNA has no voting rights for the trusts activities. The trusts only assets are junior subordinated debentures of the issuing enterprises.
The creditors of the trusts hold no recourse to the assets of FTBNA. These trusts meet the definition of a VIE because the holders of the equity investment at risk do not have adequate decision making ability over the trusts activities. In situations where FTBNA holds a majority of the trust preferreds issued by a
trust, it is considered the primary beneficiary of that trust because FTBNA will absorb a majority of the trusts expected losses. FTBNA has no contractual requirements to provide financial support to the trusts. In situations where FTBNA holds a majority, but less than all, of the trust preferreds for a trust,
consolidation of the trust results in recognition of amounts received from other parties as debt.
FHN has established certain rabbi trusts related to deferred compensation plans offered to its employees. FHN contributes employee cash compensation deferrals to the trusts and directs the underlying investments made by the trusts. The assets of these trusts are available to FHNs creditors only in the event that
FHN becomes insolvent. These trusts are considered VIEs because either there is no equity at risk in the trusts or because FHN provided the equity interest to its employees in exchange for services rendered. Given that the trusts were created in exchange for the employees services, FHN is considered the primary
beneficiary of the rabbi trusts because it is most closely related to their purpose and design. FHN has the obligation to fund any liabilities to employees that are in excess of a rabbi trusts assets.
The following table summarizes VIEs consolidated by FHN:
|
|
|
|
|
|
|
|
|
As of December 31, 2009 (Dollars in thousands) |
|
Assets |
|
Liabilities |
Type |
|
Carrying Value |
|
Classification |
|
Carrying Value |
|
Classification |
|
On balance sheet consumer loan securitizations |
|
|
$ |
|
654,644 |
|
|
Loans, net of unearned income |
|
|
$ |
|
650,442 |
|
|
Other collateralized borrowings |
Small issuer trust preferred holdings |
|
|
|
452,850 |
|
|
Loans, net of unearned income |
|
|
|
30,500 |
|
|
Term borrowings |
Rabbi trusts used for deferred compensation plans |
|
|
|
90,391 |
|
|
Other assets |
|
|
|
57,720 |
|
|
Other liabilities |
|
145
FIRST HORIZON NATIONAL CORPORATION
Note 24 q Variable Interest Entities (continued)
|
|
|
|
|
|
|
|
|
As of December 31, 2008 (Dollars in thousands) |
|
Assets |
|
Liabilities |
Type |
|
Carrying Value |
|
Classification |
|
Carrying Value |
|
Classification |
|
On balance sheet consumer loan securitizations |
|
|
$ |
|
714,717 |
|
|
Loans, net of unearned income |
|
|
$ |
|
696,508 |
|
|
Other collateralized borrowings |
Small issuer trust preferred holdings |
|
|
|
465,350 |
|
|
Loans, net of unearned income |
|
|
|
30,500 |
|
|
Term borrowings |
Rabbi trusts used for deferred compensation plans |
|
|
|
88,356 |
|
|
Other assets |
|
|
|
57,661 |
|
|
Other liabilities |
|
Nonconsolidated Variable Interest Entities. Since 1997, First Tennessee Housing Corporation (FTHC), a wholly-owned subsidiary, makes equity investments as a limited partner, in various partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42
of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital and to support FHNs community reinvestment initiatives. The activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying
residential tenants generally within FHNs primary geographic region. LIHTC partnerships are considered VIEs because FTHC, as the holder of the equity investment at risk, does not have the ability to significantly affect the success of the entity through voting rights. FTHC is not considered the primary beneficiary of
the LIHTC partnerships because an agent relationship exists between FTHC and the general partners, whereby the general partners cannot sell, transfer or otherwise encumber their ownership interest without the approval of FTHC. Because this results in a de facto agent relationship between the partners, the
general partners are considered the primary beneficiaries because their operations are most closely associated with the LIHTC partnerships operations. FTHC has no contractual requirements to provide financial support to the LIHTC partnerships beyond its initial funding commitments.
FTBNA holds variable interests in trusts which have issued mandatorily redeemable trust preferreds for smaller banking and insurance enterprises. FTBNA has no voting rights for the trusts activities. The trusts only assets are junior subordinated debentures of the issuing enterprises. These trusts meet the
definition of a VIE because the holders of the equity investment at risk do not have adequate decision making ability over the trusts activities. In situations where FTBNA did not hold a majority of the trust preferreds issued by a trust, it is not considered the primary beneficiary of that trust because FTBNA does not
absorb a majority of the expected losses of the trust. FTBNA has no contractual requirements to provide financial support to the trusts.
In third quarter 2007, FTBNA executed a securitization of certain small issuer trust preferreds for which the underlying trust did not qualify as a QSPE under ASC 860. This trust was determined to be a VIE because the holders of the equity investment at risk do not have adequate decision making ability over the
trusts activities. FTBNA determined that it was not the primary beneficiary of the trust due to the size and priority of the interests it retained in the securities issued by the trust. Accordingly, FTBNA has accounted for the funds received through the securitization as a collateralized borrowing in its Consolidated
Statement of Condition. FTBNA has no contractual requirement to provide financial support to the trust.
As discussed in Note 11, FHN issued junior subordinated debt to Capital I and Capital II totaling $309.0 million. Both Capital I and Capital II are considered VIEs because FHNs capital contributions to these trusts are not considered at risk in evaluating whether the equity investments at risk in the trusts have
adequate decision making ability over the trusts activities. Capital I and Capital II are not consolidated by FHN because the holders of the securities issued by the trusts absorb a majority of expected losses and residual returns.
Prior to September 30, 2009, wholly-owned subsidiaries of FHN served as investment advisor and administrator of certain fund of funds investment vehicles, whereby the subsidiaries received fees for management of the funds operations and through revenue sharing agreements based on the funds performance.
The funds were considered VIEs because the holders of the equity at risk did not have voting rights or the ability to control the funds operations. The subsidiaries did not make any investment in the funds. Further, the subsidiaries were not obligated
146
FIRST HORIZON NATIONAL CORPORATION
Note 24 q Variable Interest Entities (continued)
to provide any financial support to the funds. The funds were not consolidated by FHN because its subsidiaries did not absorb a majority of expected losses or residual returns.
The following table summarizes VIEs that are not consolidated by FHN:
|
|
|
|
|
|
|
As of December 31, 2009 (Dollars in thousands) |
|
Maximum Loss Exposure |
|
Liability Recognized |
|
Classification |
Type |
|
Low Income Housing Partnerships (a) (b) |
|
|
$ |
|
110,017 |
|
|
|
$ |
|
|
|
|
Other assets |
Small Issuer Trust Preferred Holdings |
|
|
|
43,000 |
|
|
|
|
|
|
|
Loans, net of unearned income |
On Balance Sheet Trust Preferred Securitization |
|
|
|
64,027 |
|
|
|
|
50,147 |
|
|
(c) |
Proprietary Trust Preferred Issuances |
|
|
|
N/A |
|
|
|
|
309,000 |
|
|
Term borrowings |
|
|
(a) |
|
|
|
Maximum loss exposure represents $108.2 million of current investments and $1.8 million of contractual funding commitments. Only the current investment amount is included in Other Assets. |
|
(b) |
|
|
|
A liability is not recognized because investments are written down over the life of the related tax credit. |
|
(c) |
|
|
|
$112.5 million was classified as Loans, net of unearned income and $1.7 million was classified as Trading securities which are offset by $50.1 million classified as Other collateralized borrowings.
|
|
|
|
|
|
|
|
As of December 31, 2008 (Dollars in thousands) |
|
Maximum Loss Exposure |
|
Liability Recognized |
|
Classification |
Type |
|
Low Income Housing Partnerships (a) (b) |
|
|
$ |
|
131,150 |
|
|
|
$ |
|
|
|
|
Other assets |
Small Issuer Trust Preferred Holdings |
|
|
|
43,000 |
|
|
|
|
|
|
|
Loans, net of unearned income |
On Balance Sheet Trust Preferred Securitization |
|
|
|
65,318 |
|
|
|
|
48,855 |
|
|
(c) |
Proprietary Trust Preferred Issuances |
|
|
|
N/A |
|
|
|
|
309,000 |
|
|
Term borrowings |
Management of Fund of Funds |
|
|
|
N/A |
|
|
|
|
N/A |
|
|
N/A |
|
|
(a) |
|
|
|
Maximum loss exposure represents $113.8 million of current investments and $17.3 million of contractual funding commitments. Only the current investment amount is included in Other Assets. |
|
(b) |
|
|
|
A liability is not recognized because investments are written down over the life of the related tax credit. |
|
(c) |
|
|
|
$112.5 million was classified as Loans, net of unearned income and $1.7 million was classified as Trading securities which are offset by $48.9 million classified as Other collateralized borrowings.
|
147
FIRST HORIZON NATIONAL CORPORATION
Note 25 q Derivatives and Off-Balance Sheet Arrangements
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and credit-related agreements) through its mortgage banking, capital markets, and risk management operations, as part of its risk management strategy and as a means to meet customers needs. These
instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet as required by GAAP. The contractual or notional amounts of these financial instruments do not necessarily represent credit or market risk. However, they can be used to measure the extent of involvement in
various types of financial instruments. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. The Asset/Liability Committee (ALCO) monitors the usage and effectiveness of these financial instruments.
Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. FHN manages credit risk by entering into financial instrument transactions
through national exchanges, primary dealers or approved counterparties, and using mutual margining and master netting agreements whenever possible to limit potential exposure. FHN also maintains collateral posting requirements with its counterparties to limit credit risk. With exchange-traded contracts, the credit
risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. Market risk
represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates, mortgage loan prepayment speeds, or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be
undertaken. FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.
Derivative Instruments. FHN enters into various derivative contracts both in a dealer capacity, to facilitate customer transactions, and also as a risk management tool. Where contracts have been created for customers, FHN enters into transactions with dealers to offset its risk exposure. Derivatives are also used as a
risk management tool to hedge FHNs exposure to changes in interest rates or other defined market risks.
Derivative instruments are recorded on the Consolidated Statements of Condition as Other assets or Other liabilities measured at fair value. Fair value is defined as the price that would be received to sell a derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on
the transaction date. Fair value is determined using available market information and appropriate valuation methodologies. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings. For a cash flow
hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any ineffective portion of a cash flow hedge is recognized currently in
earnings. For freestanding derivative instruments, changes in fair value are recognized currently in earnings. Cash flows from derivative contracts are reported as Operating activities on the Consolidated Statements of Cash Flows.
Interest rate forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a
specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and
floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on interest rate swaps that give the
purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.
On December 31, 2009 and 2008, respectively, FHN had approximately $108.2 million and $62.8 million of cash receivables and $81.0 million and $196.2 million of cash payables related to collateral posting under master netting arrangements with derivative counterparties. Certain of FHNs agreements with
derivative counterparties contain provisions that require that FTBNAs debt maintain minimum credit ratings from specified credit rating
148
FIRST HORIZON NATIONAL CORPORATION
Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)
agencies. If FTBNAs debt were to fall below these minimums, these provisions would be triggered, and the counterparties could terminate the agreements and request immediate settlement of all derivative contracts under the agreements. The net fair value, determined by individual counterparty, of all derivative
instruments with credit-risk-related contingent accelerated termination provisions were $4.4 million of assets and $10.9 million of liabilities on December 31, 2009. As of December 31, 2009, FHN had posted collateral of $10.3 million in the normal course of business related to these contracts.
Additionally, certain of FHNs derivative agreements contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit ratings of both counterparties. If the credit rating of FHN and/or FTBNA is lowered, FHN would be required to post additional collateral with the
counterparties. The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral posting thresholds were $110.8 million of assets and $81.1 million of liabilities on December 31, 2009. As of December 31, 2009, FHN had received collateral of $79.4 million and posted
collateral of $77.0 million in the normal course of business related to these agreements.
Mortgage Banking
Retained Interests
FHN revalues MSR to current fair value each month with changes in fair value included in servicing income in mortgage banking noninterest income. FHN hedges the MSR to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest
rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge instruments will decline. FHN enters into interest rate contracts (potentially including swaps, swaptions, and mortgage forward purchase contracts) to hedge against the effects of changes in fair value
of its MSR. Substantially all capitalized MSR are hedged for economic purposes.
FHN utilizes derivatives as an economic hedge (potentially including swaps, swaptions, and mortgage forward sales contracts) to protect the value of its interest-only securities that change in value inversely to the movement of interest rates. Interest-only securities are included in trading securities. Changes in the fair
value of these derivatives and the hedged interest-only securities are recognized currently in earnings in mortgage banking noninterest income as a component of servicing income.
Mortgage Warehouse and Pipeline
As a result of the sale of substantially all of FHNs mortgage origination pipeline, mortgage banking origination activity was significantly reduced in the periods after third quarter 2008 as FHN focuses on origination within its regional banking footprint. Accordingly, the following discussion of warehouse and pipeline
related derivatives is primarily applicable to reporting periods occurring through the third quarter 2008. During 2009, FHN attempted economic hedging for only a small portion of the warehouse loans and pipeline. Additionally, the fair value of interest rate lock commitments was immaterial as of December 31,
2009.
Prior to the 2008 divestiture, FHNs warehouse (mortgage loans held for sale) was subject to changes in fair value due to fluctuations in interest rates from the loan closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declined in value when interest
rates increased and rose in value when interest rates decreased. To mitigate this risk, FHN entered into forward sales and futures contracts that provided an economic hedge against those changes in fair value on a significant portion of the warehouse. These derivatives were recorded at fair value with changes in
fair value recorded in current earnings as a component of the gain or loss on the sale of loans in mortgage banking noninterest income. Upon adoption of the Financial Instruments Topic (ASC 825-10-50), FHN elected to prospectively account for substantially all of its mortgage loan warehouse products at fair
value upon origination and correspondingly discontinued the application of ASC 815-10-45 hedging relationships for all subsequent originations.
Mortgage banking interest rate lock commitments are short-term commitments to fund mortgage loan applications in process (the pipeline) for a fixed term at a fixed price. During the term of an interest rate lock commitment,
149
FIRST HORIZON NATIONAL CORPORATION
Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)
FHN had the risk that interest rates could change from the rate quoted to the borrower. FHN entered into forward sales contracts with respect to fixed rate loan commitments and futures contracts with respect to adjustable rate loan commitments as economic hedges designed to protect the value of the interest
rate lock commitments from changes in value due to changes in interest rates. Interest rate lock commitments qualify as derivative financial instruments and as such do not qualify for hedge accounting treatment. As a result, the interest rate lock commitments were recorded at fair value with changes in fair value
recorded in current earnings as gain or loss on the sale of loans in mortgage banking noninterest income. Changes in the fair value of the derivatives that served as economic hedges of interest rate lock commitments were also included in current earnings as a component of gain or loss on the sale of loans in
mortgage banking noninterest income.
The following table summarizes FHNs derivatives associated with Mortgage Banking activities for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) Description |
|
Notional |
|
Assets |
|
Liabilities |
|
Gains/(Losses) |
|
2009 |
|
Retained Interests Hedging |
|
|
|
|
|
|
|
|
Hedging Instruments: |
|
|
|
|
|
|
|
|
Forwards and Futures (a) (b) |
|
|
$ |
|
3,275,000 |
|
|
|
$ |
|
4,262 |
|
|
|
$ |
|
13,100 |
|
|
|
$ |
|
26,714 |
|
Interest Rate Swaps and Swaptions (a) (b) |
|
|
|
2,126,000 |
|
|
|
|
21,688 |
|
|
|
|
3,654 |
|
|
|
|
9,492 |
|
Hedged Items: |
|
|
|
|
|
|
|
|
Mortgage Servicing Rights (c) (b) |
|
|
|
N/A |
|
|
|
$ |
|
296,260 |
|
|
|
|
N/A |
|
|
|
$ |
|
61,850 |
|
Other Retained Interests (d) (b) |
|
|
|
N/A |
|
|
|
|
64,830 |
|
|
|
|
N/A |
|
|
|
|
47,758 |
|
|
|
(a) |
|
|
|
Assets included in the other assets section of the Consolidated Statements of Condition. Liabilities included in the other liabilities section of the Consolidated Statements of Condition. |
|
(b) |
|
|
|
Gains/Losses included in the mortgage banking income section of the Consolidated Statements of Income. |
|
(c) |
|
|
|
Assets included in the mortgage servicing rights section of the Consolidated Statements of Condition. |
|
(d) |
|
|
|
Assets included in the trading securities section of the Consolidated Statements of Condition.
|
Capital Markets
Capital Markets trades U.S. Treasury, U.S. Agency, mortgage-backed, corporate and municipal fixed income securities, and other securities principally for distribution to customers. When these securities settle on a delayed basis, they are considered forward contracts. Capital Markets also enters into interest rate
contracts, including options, caps, swaps, and floors for its customers. In addition, Capital Markets enters into futures contracts to economically hedge interest rate risk associated with a portion of its securities inventory. These transactions are measured at fair value, with changes in fair value recognized currently in
capital markets noninterest income. Related assets and liabilities are recorded on the balance sheet as other assets and other liabilities. Credit risk related to these transactions is controlled through credit approvals, risk control limits, and ongoing monitoring procedures through the Credit Risk Management
Committee. Total trading revenues related to fixed income sales, which constitute substantially all of FHNs trading activities, was $598.6 million for the year ended December 31, 2009, inclusive of both derivative and non-derivative financial instruments. Trading revenues are included in capital markets noninterest
income.
The following table summarizes FHNs derivatives associated with Capital Markets trading activities as of December 31, 2009:
|
|
|
|
|
|
|
(Dollars in thousands) Description |
|
Notional |
|
Assets |
|
Liabilities |
|
Customer Interest Rate Contracts |
|
|
$ |
|
1,514,517 |
|
|
|
$ |
|
40,128 |
|
|
|
$ |
|
15,246 |
|
Offsetting Upstream Interest Rate Contracts |
|
|
|
1,514,517 |
|
|
|
|
15,250 |
|
|
|
|
40,135 |
|
Forwards and Futures Purchased |
|
|
|
2,659,054 |
|
|
|
|
8,736 |
|
|
|
|
1,180 |
|
Forwards and Futures Sold |
|
|
|
2,836,643 |
|
|
|
|
1,051 |
|
|
|
|
11,990 |
|
|
150
FIRST HORIZON NATIONAL CORPORATION
Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)
Capital Markets hedges held-to-maturity trust preferred loans with a principal balance of $233.1 million and $244.6 million as of December 31, 2009 and 2008, respectively, which have an initial fixed rate term of five years before conversion to a floating rate. Capital Markets has entered into pay fixed, receive
floating interest rate swaps to hedge the interest rate risk associated with this initial five year term. These hedge relationships qualify as fair value hedges under ASC 815-10-45. The balance sheet impact of those swaps was $19.2 million and $27.7 million in other liabilities on December 31, 2009 and 2008,
respectively. Interest paid or received for these swaps was recognized as an adjustment of the interest income of the assets whose risk is being hedged.
The following table summarizes FHNs derivative activities associated with these loans for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) Description |
|
Notional |
|
Assets |
|
Liabilities |
|
Gains/(Losses) |
|
2009 |
|
Loan Portfolio Hedging |
|
|
|
|
|
|
|
|
Hedging Instruments: |
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
|
$ |
|
233,083 |
|
|
|
|
N/A |
|
|
|
$ |
|
19,221 |
|
|
|
$ |
|
6,640 |
|
Hedged Items: |
|
|
|
|
|
|
|
|
Trust Preferred Loans (a) |
|
|
|
N/A |
|
|
|
$ |
|
233,083 |
(b) |
|
|
|
|
N/A |
|
|
|
$ |
|
(6,754 |
)(c) |
|
|
|
(a) |
|
|
|
Assets included in loans, net of unearned section of the Consolidated Statements of Condition. |
|
(b) |
|
|
|
Represents principal balance being hedged. |
|
(c) |
|
|
|
Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-10-45 hedging relationships.
|
Interest Rate Risk Management
FHNs ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and liabilities have different maturity or repricing characteristics. FHN uses derivatives, including swaps, caps, options,
and collars, that are designed to moderate the impact on earnings as interest rates change. FHNs interest rate risk management policy is to use derivatives to hedge interest rate risk or market value of assets or liabilities, not to speculate. In addition, FHN has entered into certain interest rate swaps and caps as a
part of a product offering to commercial customers with customer derivatives paired with offsetting market instruments that, when completed, are designed to mitigate market risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in
noninterest expense.
FHN has entered into pay floating, receive fixed interest rate swaps to hedge the interest rate risk of certain long-term debt obligations totaling $1.1 billion on both December 31, 2009 and 2008. These swaps have been accounted for as fair value hedges under the shortcut method. The balance sheet impact of
these swaps was $90.9 million and $145.6 million in other assets on December 31, 2009 and 2008, respectively. Interest paid or received for these swaps was recognized as an adjustment of the interest expense of the liabilities whose risk is being managed.
FHN designates derivative transactions in hedging strategies to manage interest rate risk on subordinated debt related to its trust preferred securities. These qualify for hedge accounting under ASC 815-10-45 using the long haul method. FHN entered into pay floating, receive fixed interest rate swaps to hedge the
interest rate risk of certain subordinated debt totaling $.2 billion on December 31, 2009, and $.3 billion on December 31, 2008. The balance sheet impact of these swaps was $4.8 million in other liabilities and $1.4 million in other assets on December 31, 2009 and 2008, respectively. There was no ineffectiveness
related to these hedges. Interest paid or received for these swaps was recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. In first quarter 2009, FHNs counterparty called the swap associated with $.1 billion of subordinated debt. Accordingly, hedge accounting was
discontinued on the date of settlement and the cumulative basis adjustments to the associated subordinated debt are being prospectively amortized as an adjustment to yield over its remaining term.
151
FIRST HORIZON NATIONAL CORPORATION
Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)
The following table summarizes FHNs derivatives associated with interest rate risk management activities for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) Description |
|
Notional |
|
Assets |
|
Liabilities |
|
Gains/(Losses) |
|
2009 |
|
Customer Interest Rate Contracts Hedging |
|
|
|
|
|
|
|
|
Hedging Instruments and Hedged Items: |
|
|
|
|
|
|
|
|
Customer Interest Rate Contracts (a) |
|
|
$ |
|
1,157,540 |
|
|
|
$ |
|
65,760 |
|
|
|
$ |
|
818 |
|
|
|
$ |
|
(58,136 |
) |
|
Offsetting Upstream Interest Rate Contracts (a) |
|
|
|
1,157,540 |
|
|
|
|
818 |
|
|
|
|
69,259 |
|
|
|
|
50,946 |
|
|
Debt Hedging |
|
|
|
|
|
|
|
|
Hedging Instruments: |
|
|
|
|
|
|
|
|
Interest Rate Swaps (b) |
|
|
$ |
|
1,200,000 |
|
|
|
$ |
|
90,936 |
|
|
|
$ |
|
4,818 |
|
|
|
$ |
|
(59,844 |
) |
|
Hedged Items: |
|
|
|
|
|
|
|
|
Long-Term Debt (b) |
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
|
1,200,000 |
(c) |
|
|
|
|
59,844 |
(d) |
|
|
|
(a) |
|
|
|
Gains/Losses included in the other expense section of the Consolidated Statements of Income. |
|
(b) |
|
|
|
Gains/Losses included in the all other income and commissions section of the Consolidated Statements of Income. |
|
(c) |
|
|
|
Represents par value of long term debt being hedged. |
|
(d) |
|
|
|
Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-10-45 hedging relationships.
|
Off-Balance Sheet Arrangements
Credit-Related Commitments. FHN enters into fixed and variable interest rate loan commitments with customers. When these commitments have contract rate adjustments that lag changes in market rates, the financial instruments have characteristics similar to option contracts. FHN follows the same credit policies
and underwriting practices in making commitments as it does for on-balance sheet instruments. Each counterpartys creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on managements credit evaluation of the counterparty.
Commitments to extend credit are contractual obligations to lend to a customer as long as all established contractual conditions are met. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The majority of FHNs loan commitments have
maturities less than one year and reflect the prevailing market rates at the time of the commitment. Since commitments may expire without being fully drawn upon, total contractual amounts do not necessarily represent future credit exposure or liquidity requirements.
Other commitments include standby and commercial letters of credit and other credit enhancements. Standby and commercial letters of credit and other credit enhancements are conditional commitments issued by FHN to guarantee the performance and/or payment of a customer to a third party in connection with
specified transactions. The credit risk involved in issuing these commitments is essentially the same as that involved in extending loan facilities to customers, as performance under any of these facilities would result in a loan being funded to the customer. See Note 22 Fair Value of Assets and Liabilities for the
book value and fair value of FHNs off-balance sheet commitments.
FHN services loans for others, and in some cases, provides guarantees or recourse on the serviced loans. See Note 18 Restrictions, Contingencies, and Other Disclosures for additional information.
152
FIRST HORIZON NATIONAL CORPORATION
Note 26 q Restructuring, Repositioning, and Efficiency
Beginning in 2007, FHN began conducting a company-wide review of business practices with the goal of improving its overall profitability and productivity. In order to redeploy capital to higher-return businesses, FHN concluded the sale of 34 full-service First Horizon Bank branches in its national banking markets
in the second quarter 2008 while also taking actions to right-size mortgage banking operations and to downsize FHNs national lending operations. Additionally, in January 2008, FHN discontinued national homebuilder and commercial real estate lending through its First Horizon Construction Lending offices. FHN
also repositioned mortgage banking operations through various MSR sales.
On August 31, 2008, FHN completed the sale of substantially all of FHNs mortgage origination pipeline, related hedges, certain fixed assets, and other associated assets. FHNs mortgage loan warehouse was not included within this transaction. FHN retained its mortgage operations in and around Tennessee,
continuing to originate home loans for customers in its banking market footprint. FHN also agreed to the sale of servicing assets and related hedges on $19.1 billion of first lien mortgage loans and associated custodial deposits. FHN entered into a subservicing agreement for the remainder of FHNs servicing
portfolio. In general, FHN received book value for the assets and liabilities it sold, less a purchase price reduction.
Continuing the efforts to refocus on core businesses, a definitive agreement was reached in 2009 for the sale of FTN ECM, the institutional equity research division of FTN Financial. FHN incurred a pre-tax goodwill impairment of $14.3 million (approximately $9 million net of taxes) in 2009. This impairment and
other restructuring, repositioning, and efficiency charges incurred by FTN ECM are included with their other operating results in the Loss from discontinued operations, net of tax line on the Consolidated Statements of Income for all periods presented. During first quarter 2010, the contracted sale of FTN ECM failed
to close, and FHN exited this business. See Note 28 Other Events for additional discussion related to actions occurring in 2010.
Other transactions that occurred in late 2009 were the sales and closures of FERP and Atlanta insurance operations and the cancellation of a large services/consulting contract. Losses on divestitures were $7.5 million and $1.7 million for the divestiture of the Atlanta insurance business and FERP, respectively,
which include write-downs of associated goodwill. FHN incurred additional costs for closure of these locations in 2009, including goodwill impairment of $2.3 million. FHN also terminated an outsourcing/consulting contract in fourth quarter 2009 which triggered a $13.4 million charge.
Net costs recognized by FHN in the year ended December 31, 2009, related to restructuring, repositioning, and efficiency activities were $51.9 million. Of this amount, $12.4 million represented exit costs that were accounted for in accordance with the Exit or Disposal Cost Obligations Topic of the FASB Accounting
Standards Codification (ASC 420).
Significant expenses recognized in 2009 resulted from the following actions:
|
|
|
|
|
Severance and related employee costs of $5.6 million related to discontinuation of national lending operations and the sales and closures of FERP and the Atlanta insurance business. |
|
|
|
|
|
Loss on divestitures of $9.2 million related to the FERP and Atlanta insurance transactions. |
|
|
|
|
|
Loss of $13.4 million related to cancellation of consulting contract. |
|
|
|
|
|
Goodwill impairment of $14.3 million related to agreement to sell FTN ECM and $2.3 million related to the closure of the remaining Atlanta insurance business.
|
Net costs recognized by FHN in the year ended December 31, 2008, related to restructuring, repositioning, and efficiency activities were $91.4 million. Of this amount, $49.1 million represented exit costs that were accounted for in accordance with ASC 420.
Significant expenses recognized in 2008 resulted from the following actions:
|
|
|
|
|
Expense of $49.1 million associated with organizational and compensation changes due to right-sizing operating segments, the divestiture of certain First Horizon Bank branches and certain mortgage banking operations, and consolidating functional areas. |
|
|
|
|
|
Loss of $16.6 million on the divestiture of mortgage banking operations.
|
153
FIRST HORIZON NATIONAL CORPORATION
Note 26 q Restructuring, Repositioning, and Efficiency (continued)
|
|
|
|
|
Loss of $2.4 million from the sales of certain First Horizon Bank branches. |
|
|
|
|
|
Transaction costs of $12.7 million from the contracted sales of mortgage servicing rights. |
|
|
|
|
|
Expense of $10.7 million for the write-down of certain premises and equipment, intangibles, and other assets resulting from FHNs divestiture of certain mortgage operations and from the change in FHNs national banking strategy.
|
Net costs recognized by FHN in the year ended December 31, 2007, related to restructuring, repositioning, and efficiency activities were $98.7 million. Of this amount, $47.9 million represented exit costs accounted for in accordance with ASC 420.
Significant expenses recognized in 2007 resulted from the following actions:
|
|
|
|
|
Expense of $20.4 million associated with organizational and compensation changes for right sizing operating segments and consolidating functional areas. |
|
|
|
|
|
Non-core business repositioning costs of $17.4 million, including costs associated with the exit of the collectible coin merchandising business and the transition of the non-prime mortgage origination business to a broker model. |
|
|
|
|
|
Expense of $17.2 million related to other restructuring, repositioning, and efficiency initiatives, including facilities consolidation, procurement centralization, multi-sourcing and the divestiture of certain loan portfolios. |
|
|
|
|
|
Costs of $24.3 million related to the divestiture of 34 full-service First Horizon Bank locations in Virginia, Maryland, Georgia, and Texas, including $13.9 million for the write-down of goodwill and other intangibles; partially offset by $15.7 million of gains realized in 2007 from the disposition of 15 of these locations. |
|
|
|
|
|
Expense of $11.3 million related to the restructuring of mortgage operations through office closures, associated sales force decreases, and the reduction of management and support staff and downsizing of national lending operations through the reduction of consumer and construction sales forces and decreasing
management, support staff and back-office costs. |
|
|
|
|
|
Expense of $17.4 million for asset impairments related to the discontinuance of technology projects. |
|
|
|
|
|
Transaction costs of $6.4 million from sales of mortgage servicing rights.
|
Provision for loan losses of $7.7 million was incurred during 2007 in relation to the divestiture of a non-strategic loan portfolio. Gains or losses from the divestitures of the Atlanta insurance business, FERP, certain mortgage banking operations, and First Horizon Bank branches are included in gains/(losses) on
divestitures in the noninterest income section of the Consolidated Statements of Income. Transaction costs related to transfers of mortgage servicing rights are recorded as a reduction of mortgage banking income in the noninterest income section of the Consolidated Statements of Income. All other costs associated
with the restructuring, repositioning, and efficiency initiatives implemented by management are included in the noninterest expense section of the Consolidated Statements of Income, including severance and other employee-related costs recognized in relation to such initiatives which are recorded in employee
compensation, incentives, and benefits, facilities consolidation costs and related asset impairment costs which are included in occupancy, costs associated with the impairment of premises and equipment which are included in equipment rentals, depreciation, and maintenance. Other costs associated with such
initiatives, including professional fees, intangible asset impairment costs, and asset impairment costs related to the discontinuance of technology projects, which are included in all other expense and goodwill impairment.
Activity in the restructuring, repositioning, and efficiency liability for 2009, 2008, and 2007 is presented in the following table, along with other restructuring and repositioning expenses recognized. All costs associated with the restructuring, repositioning, and efficiency initiatives implemented in 2009, 2008, and 2007
are recorded as unallocated corporate charges within the Corporate segment.
154
FIRST HORIZON NATIONAL CORPORATION
Note 26 q Restructuring, Repositioning, and Efficiency (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
Charged to Expense |
|
Liability |
|
Charged to Expense |
|
Liability |
|
Charged to Expense |
|
Liability |
|
|
|
|
|
|
|
Beginning Balance |
|
|
$ |
|
- |
|
|
|
$ |
|
24,167 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
19,675 |
|
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
Severance and other employee related costs (a) |
|
|
|
5,612 |
|
|
|
|
5,612 |
|
|
|
|
24,400 |
|
|
|
|
24,400 |
|
|
|
|
25,532 |
|
|
|
|
25,532 |
|
Facility consolidation costs |
|
|
|
6,511 |
|
|
|
|
6,511 |
|
|
|
|
16,751 |
|
|
|
|
16,751 |
|
|
|
|
13,131 |
|
|
|
|
13,131 |
|
Other exit costs, professional fees, and other |
|
|
|
322 |
|
|
|
|
322 |
|
|
|
|
7,902 |
|
|
|
|
7,902 |
|
|
|
|
9,255 |
|
|
|
|
9,255 |
|
|
|
|
|
|
|
|
Total Accrued |
|
|
$ |
|
12,445 |
|
|
|
$ |
|
36,612 |
|
|
|
$ |
|
49,053 |
|
|
|
$ |
|
68,728 |
|
|
|
$ |
|
47,918 |
|
|
|
$ |
|
47,918 |
|
Payments related to: |
|
|
|
|
|
|
|
|
|
|
|
|
Severance and other employee related costs |
|
|
|
|
$ |
|
9,840 |
|
|
|
|
|
$ |
|
16,235 |
|
|
|
|
|
$ |
|
15,174 |
|
Facility consolidation costs |
|
|
|
|
|
8,868 |
|
|
|
|
|
|
14,223 |
|
|
|
|
|
|
3,992 |
|
Other exit costs, professional fees, and other |
|
|
|
|
|
874 |
|
|
|
|
|
|
7,558 |
|
|
|
|
|
|
7,915 |
|
Accrual reversals |
|
|
|
|
|
1,127 |
|
|
|
|
|
|
6,545 |
|
|
|
|
|
|
1,162 |
|
|
|
|
|
|
|
|
Restructuring and Repositioning Reserve Balance |
|
|
|
|
$ |
|
15,903 |
|
|
|
|
|
$ |
|
24,167 |
|
|
|
|
|
$ |
|
19,675 |
|
|
|
|
|
|
|
|
Other Restructuring and Repositioning Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan portfolio divestiture |
|
|
$ |
|
- |
|
|
|
|
|
$ |
|
- |
|
|
|
|
|
$ |
|
7,672 |
|
|
|
Mortgage banking expense on servicing sales |
|
|
|
548 |
|
|
|
|
|
|
12,667 |
|
|
|
|
|
|
6,428 |
|
|
|
Loss/(gain) on divestitures |
|
|
|
9,183 |
|
|
|
|
|
|
19,020 |
|
|
|
|
|
|
(15,695 |
) |
|
|
|
Impairment of premises and equipment |
|
|
|
2,873 |
|
|
|
|
|
|
5,650 |
|
|
|
|
|
|
9,288 |
|
|
|
Impairment of intangible assets |
|
|
|
16,753 |
|
|
|
|
|
|
4,030 |
|
|
|
|
|
|
13,999 |
|
|
|
Impairment of other assets |
|
|
|
10,124 |
|
|
|
|
|
|
993 |
|
|
|
|
|
|
29,108 |
|
|
|
|
|
|
|
|
|
|
Total Other Restructuring and Repositioning Expense |
|
|
$ |
|
39,481 |
|
|
|
|
|
$ |
|
42,360 |
|
|
|
|
|
$ |
|
50,800 |
|
|
|
|
|
|
|
|
|
|
Total Restructuring and Repositioning Charges |
|
|
$ |
|
51,926 |
|
|
|
|
|
$ |
|
91,413 |
|
|
|
|
|
$ |
|
98,718 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
|
Includes $1.2 million of deferred severance-related payments that will be paid after 2009.
|
Cumulative amounts incurred to date for costs associated with FHNs restructuring, repositioning, and efficiency initiatives are presented in the following table:
|
|
|
(Dollars in thousands) |
|
Charged to Expense |
|
|
|
Severance and other employee related costs (a) |
|
|
$ |
|
55,544 |
|
Facility consolidation costs |
|
|
|
36,393 |
|
Other exit costs, professional fees, and other |
|
|
|
17,478 |
|
Other restructuring & repositioning expense: |
|
|
Loan portfolio divestiture |
|
|
|
7,672 |
|
Mortgage banking expense on servicing sales |
|
|
|
19,643 |
|
Net loss on divestitures |
|
|
|
12,508 |
|
Impairment of premises and equipment |
|
|
|
17,811 |
|
Impairment of intangible assets |
|
|
|
34,783 |
|
Impairment of other assets |
|
|
|
40,225 |
|
|
|
|
Total Restructuring and Repositioning Charges Incurred to Date as of December 31, 2009 |
|
|
$ |
|
242,057 |
|
|
|
|
|
(a) |
|
|
|
Includes $1.2 million of deferred severance-related payments that will be paid after 2009.
|
155
FIRST HORIZON NATIONAL CORPORATION
Note 27 q Parent Company Financial Information
Following are condensed statements of the parent company:
|
|
|
|
|
Statements of Condition |
|
Year Ended December 31 |
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Assets: |
|
|
|
|
Cash |
|
|
$ |
|
- |
|
|
|
$ |
|
11,549 |
|
Securities purchased from subsidiary bank under agreements to resell |
|
|
|
17,827 |
|
|
|
|
- |
|
|
Total cash and cash equivalents |
|
|
|
17,827 |
|
|
|
|
11,549 |
|
Interest-bearing cash |
|
|
|
160,999 |
|
|
|
|
240,963 |
|
Securities available for sale |
|
|
|
7,160 |
|
|
|
|
4,537 |
|
Notes receivable |
|
|
|
3,700 |
|
|
|
|
3,700 |
|
Allowance for loan losses |
|
|
|
(823 |
) |
|
|
|
|
- |
|
Investments in subsidiaries: |
|
|
|
|
Bank |
|
|
|
3,455,474 |
|
|
|
|
3,667,228 |
|
Non-bank |
|
|
|
20,631 |
|
|
|
|
20,814 |
|
Other assets |
|
|
|
208,181 |
|
|
|
|
215,337 |
|
|
Total assets |
|
|
$ |
|
3,873,149 |
|
|
|
$ |
|
4,164,128 |
|
|
Liabilities and equity: |
|
|
|
|
Other short-term borrowings and commercial paper |
|
|
$ |
|
3,800 |
|
|
|
$ |
|
16,830 |
|
Accrued employee benefits and other liabilities |
|
|
|
130,507 |
|
|
|
|
129,684 |
|
Long-term debt |
|
|
|
436,374 |
|
|
|
|
442,982 |
|
|
Total liabilities |
|
|
|
570,681 |
|
|
|
|
589,496 |
|
Total equity |
|
|
|
3,302,468 |
|
|
|
|
3,574,632 |
|
|
Total liabilities and equity |
|
|
$ |
|
3,873,149 |
|
|
|
$ |
|
4,164,128 |
|
|
Certain previously reports amounts have been reclassified to agree with current presentation.
|
|
|
|
|
|
|
Statements of Income |
|
Year Ended December 31 |
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Dividend income: |
|
|
|
|
|
|
Bank |
|
|
$ |
|
- |
|
|
|
$ |
|
- |
|
|
|
$ |
|
230,000 |
|
Non-bank |
|
|
|
1,261 |
|
|
|
|
3,852 |
|
|
|
|
11,292 |
|
|
Total dividend income |
|
|
|
1,261 |
|
|
|
|
3,852 |
|
|
|
|
241,292 |
|
Interest income |
|
|
|
570 |
|
|
|
|
4,035 |
|
|
|
|
6,266 |
|
Other income |
|
|
|
1,494 |
|
|
|
|
(1,724 |
) |
|
|
|
|
(1,656 |
) |
|
|
Total income |
|
|
|
3,325 |
|
|
|
|
6,163 |
|
|
|
|
245,902 |
|
|
Provision for loan losses |
|
|
|
823 |
|
|
|
|
- |
|
|
|
|
- |
|
Interest expense: |
|
|
|
|
|
|
Short-term debt |
|
|
|
298 |
|
|
|
|
285 |
|
|
|
|
395 |
|
Long-term debt |
|
|
|
12,166 |
|
|
|
|
18,940 |
|
|
|
|
26,935 |
|
|
Total interest expense |
|
|
|
12,464 |
|
|
|
|
19,225 |
|
|
|
|
27,330 |
|
Compensation, employee benefits and other expense |
|
|
|
33,398 |
|
|
|
|
49,290 |
|
|
|
|
39,041 |
|
|
Total expense |
|
|
|
46,685 |
|
|
|
|
68,515 |
|
|
|
|
66,371 |
|
|
Loss before income taxes |
|
|
|
(43,360 |
) |
|
|
|
|
(62,352 |
) |
|
|
|
|
179,531 |
|
Income tax benefit |
|
|
|
(20,514 |
) |
|
|
|
|
(20,884 |
) |
|
|
|
|
(30,486 |
) |
|
|
Loss before equity in undistributed net income of subsidiaries |
|
|
|
(22,846 |
) |
|
|
|
|
(41,468 |
) |
|
|
|
|
210,017 |
|
Equity in undistributed net income/(loss) of subsidiaries: |
|
|
|
|
|
|
Bank |
|
|
|
(247,205 |
) |
|
|
|
|
(148,315 |
) |
|
|
|
|
(372,300 |
) |
|
Non-bank |
|
|
|
214 |
|
|
|
|
(2,204 |
) |
|
|
|
|
(7,863 |
) |
|
|
Net loss available to common shareholders |
|
|
$ |
|
(269,837 |
) |
|
|
|
$ |
|
(191,987 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
|
Certain previously reports amounts have been reclassified to agree with current presentation.
156
FIRST HORIZON NATIONAL CORPORATION
Note 27 q Parent Company Financial Information (continued)
|
|
|
|
|
|
|
Statements of Cash Flows |
|
Year Ended December 31 |
|
(Dollars in thousands) |
|
2009 |
|
2008 |
|
2007 |
|
Operating activities: |
|
|
|
|
|
|
Net loss |
|
|
$ |
|
(269,837 |
) |
|
|
|
$ |
|
(191,987 |
) |
|
|
|
$ |
|
(170,146 |
) |
|
Less undistributed net loss of subsidiaries |
|
|
|
(246,991 |
) |
|
|
|
|
(150,519 |
) |
|
|
|
|
(380,163 |
) |
|
|
Income/(loss) before undistributed net income of subsidiaries |
|
|
|
(22,846 |
) |
|
|
|
|
(41,468 |
) |
|
|
|
|
210,017 |
|
Adjustments to reconcile income to net cash provided by operating activities: |
|
|
|
|
|
|
Deferred income tax provision/(benefit) |
|
|
|
764 |
|
|
|
|
(1,160 |
) |
|
|
|
|
(9,838 |
) |
|
Depreciation and amortization |
|
|
|
5,131 |
|
|
|
|
3,060 |
|
|
|
|
5,239 |
|
Stock-based compensation expense |
|
|
|
5,821 |
|
|
|
|
2,930 |
|
|
|
|
4,968 |
|
Loss on sale of securities |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
3,641 |
|
Net (increase)/decrease in interest receivable and other assets |
|
|
|
(2,962 |
) |
|
|
|
|
94,931 |
|
|
|
|
14,617 |
|
Net decrease in interest payable and other liabilities |
|
|
|
(507 |
) |
|
|
|
|
(110,378 |
) |
|
|
|
|
(14,030 |
) |
|
|
Total adjustments |
|
|
|
8,247 |
|
|
|
|
(10,617 |
) |
|
|
|
|
4,597 |
|
|
Net cash provided/(used) by operating activities |
|
|
|
(14,599 |
) |
|
|
|
|
(52,085 |
) |
|
|
|
|
214,614 |
|
|
Investing activities: |
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
Sales and prepayments |
|
|
|
- |
|
|
|
|
2,714 |
|
|
|
|
30,606 |
|
Purchases |
|
|
|
(3,000 |
) |
|
|
|
|
(1,528 |
) |
|
|
|
|
(550 |
) |
|
Decrease/(increase) in interest-bearing cash |
|
|
|
79,963 |
|
|
|
|
(34,909 |
) |
|
|
|
|
(185,477 |
) |
|
Return on investment in subsidiary |
|
|
|
700 |
|
|
|
|
2,918 |
|
|
|
|
- |
|
Cash investments in subsidiaries |
|
|
|
- |
|
|
|
|
(1,346,169 |
) |
|
|
|
|
589 |
|
|
Net cash provided/(used) by investing activities |
|
|
|
77,663 |
|
|
|
|
(1,376,974 |
) |
|
|
|
|
(154,832 |
) |
|
|
Financing activities: |
|
|
|
|
|
|
Preferred stock: |
|
|
|
|
|
|
Proceeds from issuance of preferred stock and common stock warrant - CPP |
|
|
|
- |
|
|
|
|
866,540 |
|
|
|
|
- |
|
Cash dividends |
|
|
|
(43,447 |
) |
|
|
|
|
- |
|
|
|
|
- |
|
Common stock: |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
3 |
|
|
|
|
511 |
|
|
|
|
34,542 |
|
Proceeds from issuance of common stock |
|
|
|
- |
|
|
|
|
659,656 |
|
|
|
|
- |
|
Cash dividends |
|
|
|
- |
|
|
|
|
(120,575 |
) |
|
|
|
|
(225,011 |
) |
|
Repurchase of shares |
|
|
|
(392 |
) |
|
|
|
|
(303 |
) |
|
|
|
|
(1,104 |
) |
|
Long-term debt: |
|
|
|
|
|
|
Payment |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(30,000 |
) |
|
(Decrease)/increase in short-term borrowings |
|
|
|
(13,030 |
) |
|
|
|
|
14,754 |
|
|
|
|
(3,544 |
) |
|
Other |
|
|
|
80 |
|
|
|
|
- |
|
|
|
|
- |
|
|
Net cash (used)/provided by financing activities |
|
|
|
(56,786 |
) |
|
|
|
|
1,420,583 |
|
|
|
|
(225,117 |
) |
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
|
6,278 |
|
|
|
|
(8,476 |
) |
|
|
|
|
(165,335 |
) |
|
|
Cash and cash equivalents at beginning of year |
|
|
|
11,549 |
|
|
|
|
20,025 |
|
|
|
|
185,360 |
|
|
Cash and cash equivalents at end of year |
|
|
$ |
|
17,827 |
|
|
|
$ |
|
11,549 |
|
|
|
$ |
|
20,025 |
|
|
Total interest paid |
|
|
$ |
|
12,246 |
|
|
|
$ |
|
19,014 |
|
|
|
$ |
|
27,426 |
|
Total income taxes paid |
|
|
|
99,090 |
|
|
|
|
332,600 |
|
|
|
|
11,390 |
|
|
Certain previously reports amounts have been reclassified to agree with current presentation.
Note 28 q Other Events
During first quarter 2010, the contracted sale of FTN Financials institutional equity research business, FTN ECM, failed to close and FHN exited this business. FHN estimates that additional charges against first quarter 2010 earnings of approximately $10 million will be incurred in connection with this action.
157
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED HISTORICAL STATEMENTS OF INCOME (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions except per share data) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Growth Rates (%) |
|
09/08 |
|
09/04** |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
|
$ |
|
769.7 |
|
|
|
$ |
|
1,153.5 |
|
|
|
$ |
|
1,621.9 |
|
|
|
$ |
|
1,591.0 |
|
|
|
$ |
|
1,133.5 |
|
|
|
$ |
|
774.7 |
|
|
|
|
33.3 |
- |
|
|
|
|
* |
|
Interest on investment securities |
|
|
|
141.9 |
|
|
|
|
162.3 |
|
|
|
|
188.7 |
|
|
|
|
188.1 |
|
|
|
|
125.2 |
|
|
|
|
104.4 |
|
|
|
|
12.6 |
- |
|
|
|
|
6.3 |
+ |
|
Interest on loans held for sale |
|
|
|
25.8 |
|
|
|
|
151.6 |
|
|
|
|
253.6 |
|
|
|
|
288.2 |
|
|
|
|
377.9 |
|
|
|
|
226.8 |
|
|
|
|
83.0 |
- |
|
|
|
|
35.3 |
- |
|
Interest on trading securities inventory |
|
|
|
53.2 |
|
|
|
|
114.6 |
|
|
|
|
174.2 |
|
|
|
|
171.1 |
|
|
|
|
138.5 |
|
|
|
|
53.4 |
|
|
|
|
53.6 |
- |
|
|
|
|
* |
|
Interest on other earning assets |
|
|
|
2.4 |
|
|
|
|
24.7 |
|
|
|
|
67.5 |
|
|
|
|
90.7 |
|
|
|
|
65.1 |
|
|
|
|
7.5 |
|
|
|
|
90.3 |
- |
|
|
|
|
20.4 |
- |
|
|
|
|
Total interest income |
|
|
|
993.0 |
|
|
|
|
1,606.7 |
|
|
|
|
2,305.9 |
|
|
|
|
2,329.1 |
|
|
|
|
1,840.2 |
|
|
|
|
1,166.8 |
|
|
|
|
38.2 |
- |
|
|
|
|
3.2 |
- |
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
|
38.9 |
|
|
|
|
79.9 |
|
|
|
|
115.9 |
|
|
|
|
88.5 |
|
|
|
|
44.4 |
|
|
|
|
19.6 |
|
|
|
|
51.3 |
- |
|
|
|
|
14.7 |
+ |
|
Time deposits |
|
|
|
60.9 |
|
|
|
|
101.2 |
|
|
|
|
136.6 |
|
|
|
|
120.3 |
|
|
|
|
79.0 |
|
|
|
|
60.1 |
|
|
|
|
39.8 |
- |
|
|
|
|
* |
|
Other interest-bearing deposits |
|
|
|
5.0 |
|
|
|
|
13.8 |
|
|
|
|
25.9 |
|
|
|
|
24.5 |
|
|
|
|
15.5 |
|
|
|
|
4.8 |
|
|
|
|
63.8 |
- |
|
|
|
|
* |
|
Certificates of deposit $100,000 and more |
|
|
|
27.7 |
|
|
|
|
76.3 |
|
|
|
|
369.3 |
|
|
|
|
493.2 |
|
|
|
|
364.1 |
|
|
|
|
108.0 |
|
|
|
|
63.7 |
- |
|
|
|
|
23.8 |
- |
|
Interest on trading liabilities |
|
|
|
20.9 |
|
|
|
|
33.2 |
|
|
|
|
51.5 |
|
|
|
|
76.1 |
|
|
|
|
80.2 |
|
|
|
|
20.0 |
|
|
|
|
37.0 |
- |
|
|
|
|
* |
|
Interest on short-term borrowings |
|
|
|
13.0 |
|
|
|
|
189.6 |
|
|
|
|
294.1 |
|
|
|
|
248.9 |
|
|
|
|
171.9 |
|
|
|
|
47.8 |
|
|
|
|
93.1 |
- |
|
|
|
|
22.9 |
- |
|
Interest on long-term debt |
|
|
|
50.1 |
|
|
|
|
217.6 |
|
|
|
|
372.0 |
|
|
|
|
280.7 |
|
|
|
|
101.1 |
|
|
|
|
50.2 |
|
|
|
|
77.0 |
- |
|
|
|
|
* |
|
|
|
|
Total interest expense |
|
|
|
216.5 |
|
|
|
|
711.6 |
|
|
|
|
1,365.3 |
|
|
|
|
1,332.2 |
|
|
|
|
856.2 |
|
|
|
|
310.5 |
|
|
|
|
69.6 |
- |
|
|
|
|
7.0 |
- |
|
|
|
|
Net interest income |
|
|
|
776.5 |
|
|
|
|
895.1 |
|
|
|
|
940.6 |
|
|
|
|
996.9 |
|
|
|
|
984.0 |
|
|
|
|
856.3 |
|
|
|
|
13.2 |
- |
|
|
|
|
1.9 |
- |
|
Provision for loan losses |
|
|
|
880.0 |
|
|
|
|
1,080.0 |
|
|
|
|
272.8 |
|
|
|
|
83.1 |
|
|
|
|
67.7 |
|
|
|
|
48.3 |
|
|
|
|
18.5 |
- |
|
|
|
|
78.7 |
+ |
|
|
|
|
Net interest income/(loss) after provision |
|
|
|
(103.5 |
) |
|
|
|
|
(184.9 |
) |
|
|
|
|
667.8 |
|
|
|
|
913.8 |
|
|
|
|
916.3 |
|
|
|
|
808.0 |
|
|
|
|
44.0 |
+ |
|
|
|
|
NM |
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital markets |
|
|
|
632.1 |
|
|
|
|
483.5 |
|
|
|
|
284.2 |
|
|
|
|
320.0 |
|
|
|
|
286.2 |
|
|
|
|
313.4 |
|
|
|
|
30.7 |
+ |
|
|
|
|
15.1 |
+ |
|
Mortgage banking |
|
|
|
235.5 |
|
|
|
|
518.0 |
|
|
|
|
69.5 |
|
|
|
|
370.6 |
|
|
|
|
479.6 |
|
|
|
|
444.8 |
|
|
|
|
54.5 |
- |
|
|
|
|
11.9 |
- |
|
Deposit transactions and cash management |
|
|
|
163.8 |
|
|
|
|
179.0 |
|
|
|
|
175.3 |
|
|
|
|
168.6 |
|
|
|
|
156.2 |
|
|
|
|
148.5 |
|
|
|
|
8.5 |
- |
|
|
|
|
2.0 |
+ |
|
Trust services and investment management |
|
|
|
29.5 |
|
|
|
|
33.8 |
|
|
|
|
40.3 |
|
|
|
|
41.5 |
|
|
|
|
44.6 |
|
|
|
|
47.3 |
|
|
|
|
12.7 |
- |
|
|
|
|
9.0 |
- |
|
Brokerage management fees and commissions |
|
|
|
26.9 |
|
|
|
|
32.2 |
|
|
|
|
37.8 |
|
|
|
|
37.2 |
|
|
|
|
30.9 |
|
|
|
|
28.6 |
|
|
|
|
16.5 |
- |
|
|
|
|
1.2 |
- |
|
Insurance commissions |
|
|
|
25.2 |
|
|
|
|
29.1 |
|
|
|
|
31.7 |
|
|
|
|
46.6 |
|
|
|
|
54.1 |
|
|
|
|
56.1 |
|
|
|
|
13.4 |
- |
|
|
|
|
14.8 |
- |
|
Debt securities gains/(losses), net |
|
|
|
- |
|
|
|
|
.8 |
|
|
|
|
6.3 |
|
|
|
|
(75.9 |
) |
|
|
|
|
- |
|
|
|
|
18.7 |
|
|
|
|
NM |
|
|
|
|
NM |
|
Equity securities gains/(losses), net |
|
|
|
(1.2 |
) |
|
|
|
|
65.3 |
|
|
|
|
(7.5 |
) |
|
|
|
|
10.3 |
|
|
|
|
(.5 |
) |
|
|
|
|
2.0 |
|
|
|
|
NM |
|
|
|
|
NM |
|
Gains/(losses) on divestitures |
|
|
|
(9.2 |
) |
|
|
|
|
(19.0 |
) |
|
|
|
|
15.7 |
|
|
|
|
- |
|
|
|
|
7.0 |
|
|
|
|
1.2 |
|
|
|
|
NM |
|
|
|
|
NM |
|
All other income and commissions |
|
|
|
130.9 |
|
|
|
|
127.7 |
|
|
|
|
153.6 |
|
|
|
|
185.0 |
|
|
|
|
182.3 |
|
|
|
|
158.0 |
|
|
|
|
2.5 |
+ |
|
|
|
|
3.7 |
- |
|
|
|
|
Total noninterest income |
|
|
|
1,233.5 |
|
|
|
|
1,450.4 |
|
|
|
|
806.9 |
|
|
|
|
1,103.9 |
|
|
|
|
1,240.4 |
|
|
|
|
1,218.6 |
|
|
|
|
15.0 |
- |
|
|
|
|
* |
|
|
|
|
Adjusted gross income after provision |
|
|
|
1,130.0 |
|
|
|
|
1,265.5 |
|
|
|
|
1,474.7 |
|
|
|
|
2,017.7 |
|
|
|
|
2,156.7 |
|
|
|
|
2,026.6 |
|
|
|
|
10.7 |
- |
|
|
|
|
11.0 |
- |
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation, incentives, and benefits |
|
|
|
777.6 |
|
|
|
|
929.0 |
|
|
|
|
932.4 |
|
|
|
|
985.0 |
|
|
|
|
949.1 |
|
|
|
|
862.3 |
|
|
|
|
16.3 |
- |
|
|
|
|
2.0 |
- |
|
Mortgage banking foreclosure and repurchase provision |
|
|
|
126.5 |
|
|
|
|
11.5 |
|
|
|
|
8.5 |
|
|
|
|
1.6 |
|
|
|
|
2.8 |
|
|
|
|
3.8 |
|
|
|
|
NM |
|
|
|
|
101.6 |
+ |
|
Foreclosed real estate |
|
|
|
66.2 |
|
|
|
|
21.5 |
|
|
|
|
7.6 |
|
|
|
|
2.8 |
|
|
|
|
1.1 |
|
|
|
|
2.0 |
|
|
|
|
NM |
|
|
|
|
101.4 |
+ |
|
Legal and professional fees |
|
|
|
66.1 |
|
|
|
|
62.2 |
|
|
|
|
52.9 |
|
|
|
|
41.2 |
|
|
|
|
43.3 |
|
|
|
|
36.4 |
|
|
|
|
6.3 |
+ |
|
|
|
|
12.7 |
+ |
|
Occupancy |
|
|
|
65.4 |
|
|
|
|
103.6 |
|
|
|
|
129.6 |
|
|
|
|
115.0 |
|
|
|
|
102.5 |
|
|
|
|
86.3 |
|
|
|
|
36.9 |
- |
|
|
|
|
5.4 |
- |
|
Operations services |
|
|
|
62.5 |
|
|
|
|
72.6 |
|
|
|
|
69.5 |
|
|
|
|
65.7 |
|
|
|
|
68.7 |
|
|
|
|
56.8 |
|
|
|
|
13.9 |
- |
|
|
|
|
* |
|
Deposit insurance premium |
|
|
|
46.3 |
|
|
|
|
14.7 |
|
|
|
|
3.3 |
|
|
|
|
3.2 |
|
|
|
|
3.0 |
|
|
|
|
3.0 |
|
|
|
|
NM |
|
|
|
|
72.9 |
+ |
|
Contract employment |
|
|
|
36.2 |
|
|
|
|
33.5 |
|
|
|
|
21.5 |
|
|
|
|
27.4 |
|
|
|
|
30.3 |
|
|
|
|
23.7 |
|
|
|
|
8.1 |
+ |
|
|
|
|
8.8 |
+ |
|
Equipment rentals, depreciation, and maintenance |
|
|
|
34.3 |
|
|
|
|
56.7 |
|
|
|
|
72.4 |
|
|
|
|
73.2 |
|
|
|
|
73.8 |
|
|
|
|
69.9 |
|
|
|
|
39.5 |
- |
|
|
|
|
13.3 |
- |
|
Communications and courier |
|
|
|
27.0 |
|
|
|
|
38.2 |
|
|
|
|
42.0 |
|
|
|
|
47.1 |
|
|
|
|
47.4 |
|
|
|
|
40.7 |
|
|
|
|
29.3 |
- |
|
|
|
|
7.9 |
- |
|
Computer software |
|
|
|
26.9 |
|
|
|
|
30.3 |
|
|
|
|
53.9 |
|
|
|
|
34.3 |
|
|
|
|
28.5 |
|
|
|
|
26.7 |
|
|
|
|
11.2 |
- |
|
|
|
|
0.1 |
+ |
|
Miscellaneous loan costs |
|
|
|
23.0 |
|
|
|
|
38.2 |
|
|
|
|
12.8 |
|
|
|
|
12.1 |
|
|
|
|
8.0 |
|
|
|
|
18.6 |
|
|
|
|
39.8 |
- |
|
|
|
|
4.3 |
+ |
|
Amortization of intangible assets |
|
|
|
6.0 |
|
|
|
|
8.2 |
|
|
|
|
10.5 |
|
|
|
|
10.4 |
|
|
|
|
9.4 |
|
|
|
|
5.3 |
|
|
|
|
26.8 |
- |
|
|
|
|
2.5 |
+ |
|
Goodwill impairment |
|
|
|
2.3 |
|
|
|
|
- |
|
|
|
|
84.1 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
NM |
|
|
|
|
NM |
|
All other expense |
|
|
|
184.2 |
|
|
|
|
174.1 |
|
|
|
|
267.4 |
|
|
|
|
245.6 |
|
|
|
|
189.7 |
|
|
|
|
172.5 |
|
|
|
|
5.8 |
+ |
|
|
|
|
* |
|
|
|
|
Total noninterest expense |
|
|
|
1,550.5 |
|
|
|
|
1,594.3 |
|
|
|
|
1,768.4 |
|
|
|
|
1,664.6 |
|
|
|
|
1,557.6 |
|
|
|
|
1,408.0 |
|
|
|
|
2.7 |
- |
|
|
|
|
1.9 |
+ |
|
|
|
|
Income/(loss) before income taxes |
|
|
|
(420.5 |
) |
|
|
|
|
(328.8 |
) |
|
|
|
|
(293.7 |
) |
|
|
|
|
353.1 |
|
|
|
|
599.1 |
|
|
|
|
618.6 |
|
|
|
|
27.9 |
- |
|
|
|
|
NM |
|
Provision/(benefit) for income taxes |
|
|
|
(174.9 |
) |
|
|
|
|
(154.4 |
) |
|
|
|
|
(139.9 |
) |
|
|
|
|
85.3 |
|
|
|
|
182.2 |
|
|
|
|
193.6 |
|
|
|
|
13.3 |
- |
|
|
|
|
NM |
|
|
|
|
Income/(loss) from continuing operations |
|
|
|
(245.6 |
) |
|
|
|
|
(174.4 |
) |
|
|
|
|
(153.8 |
) |
|
|
|
|
267.8 |
|
|
|
|
416.9 |
|
|
|
|
425.0 |
|
|
|
|
40.8 |
- |
|
|
|
|
NM |
|
Income/(loss) from discontinued operations, net of tax |
|
|
|
(12.8 |
) |
|
|
|
|
(3.6 |
) |
|
|
|
|
2.5 |
|
|
|
|
212.0 |
|
|
|
|
21.7 |
|
|
|
|
20.7 |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
Income/(loss) before cumulative effect of changes in accounting principle |
|
|
|
(258.4 |
) |
|
|
|
|
(178.0 |
) |
|
|
|
|
(151.3 |
) |
|
|
|
|
479.8 |
|
|
|
|
438.6 |
|
|
|
|
445.7 |
|
|
|
|
45.2 |
- |
|
|
|
|
NM |
|
Cumulative effect of changes in accounting principle, net of tax |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
1.3 |
|
|
|
|
(3.1 |
) |
|
|
|
|
- |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
Net income/(loss) |
|
|
|
(258.4 |
) |
|
|
|
|
(178.0 |
) |
|
|
|
|
(151.3 |
) |
|
|
|
|
481.1 |
|
|
|
|
435.5 |
|
|
|
|
445.7 |
|
|
|
|
45.2 |
- |
|
|
|
|
NM |
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
|
11.4 |
|
|
|
|
14.0 |
|
|
|
|
18.8 |
|
|
|
|
18.2 |
|
|
|
|
10.8 |
|
|
|
|
- |
|
|
|
|
18.6 |
- |
|
|
|
|
NM |
|
|
|
|
Net income/(loss) attributable to controlling interest |
|
|
|
(269.8 |
) |
|
|
|
|
(192.0 |
) |
|
|
|
|
(170.1 |
) |
|
|
|
|
462.9 |
|
|
|
|
424.7 |
|
|
|
|
445.7 |
|
|
|
|
40.5 |
- |
|
|
|
|
NM |
|
Preferred stock dividends |
|
|
|
59.6 |
|
|
|
|
7.4 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
NM |
|
|
|
|
NM |
|
|
|
|
Net income/(loss) available to common shareholders |
|
|
$ |
|
(329.4 |
) |
|
|
|
$ |
|
(199.4 |
) |
|
|
|
$ |
|
(170.1 |
) |
|
|
|
$ |
|
462.9 |
|
|
|
$ |
|
424.7 |
|
|
|
$ |
|
445.7 |
|
|
|
|
65.2 |
- |
|
|
|
|
NM |
|
|
|
|
Fully taxable equivalent adjustment |
|
|
$ |
|
1.1 |
|
|
|
$ |
|
1.4 |
|
|
|
$ |
|
.7 |
|
|
|
$ |
|
1.2 |
|
|
|
$ |
|
1.1 |
|
|
|
$ |
|
1.1 |
|
|
|
|
18.5 |
- |
|
|
|
|
* |
|
|
|
|
Earnings/(loss) per common share from continuing operations |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
|
|
$ |
|
1.78 |
|
|
|
$ |
|
2.87 |
|
|
|
$ |
|
3.02 |
|
|
|
|
42.5 |
- |
|
|
|
|
NM |
|
|
|
|
Diluted earnings/(loss) per common share from continuing operations |
|
|
$ |
|
(1.44 |
) |
|
|
|
$ |
|
(1.01 |
) |
|
|
|
$ |
|
(1.22 |
) |
|
|
|
$ |
|
1.73 |
|
|
|
$ |
|
2.77 |
|
|
|
$ |
|
2.93 |
|
|
|
|
42.5 |
- |
|
|
|
|
NM |
|
|
|
|
Earnings/(loss) per share available to common shareholders |
|
|
$ |
|
(1.49 |
) |
|
|
|
$ |
|
(1.03 |
) |
|
|
|
$ |
|
(1.20 |
) |
|
|
|
$ |
|
3.30 |
|
|
|
$ |
|
3.00 |
|
|
|
$ |
|
3.17 |
|
|
|
|
45.7 |
- |
|
|
|
|
NM |
|
|
|
|
Diluted earnings/(loss) per share available to common shareholders |
|
|
$ |
|
(1.49 |
) |
|
|
|
$ |
|
(1.03 |
) |
|
|
|
$ |
|
(1.20 |
) |
|
|
|
$ |
|
3.21 |
|
|
|
$ |
|
2.90 |
|
|
|
$ |
|
3.07 |
|
|
|
|
45.7 |
- |
|
|
|
|
NM |
|
|
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
NM not meaningful
|
* |
|
|
|
Amount is less than one percent. |
|
** |
|
|
|
Compound annual growth rate.
|
158
FIRST HORIZON NATIONAL CORPORATION
[THIS PAGE INTENTIONALLY LEFT BLANK]
CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Fully taxable equivalent) (Dollars in millions) |
|
2009 |
|
2008 |
|
Average Balance Growth(%) |
|
Average Balance |
|
Interest Income/ Expense |
|
Average Yields/ Rates |
|
Average Balance |
|
Interest Income/ Expense |
|
Average Yields/ Rates |
|
09/08 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (a) |
|
|
$ |
|
19,579.3 |
|
|
|
$ |
|
770.3 |
|
|
|
|
3.93 |
% |
|
|
|
$ |
|
21,660.7 |
|
|
|
$ |
|
1,154.1 |
|
|
|
|
5.33 |
% |
|
|
|
|
9.6 |
- |
|
Loans held for sale |
|
|
|
546.8 |
|
|
|
|
25.8 |
|
|
|
|
4.72 |
|
|
|
|
2,588.0 |
|
|
|
|
151.6 |
|
|
|
|
5.86 |
|
|
|
|
78.9 |
- |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries |
|
|
|
50.1 |
|
|
|
|
.9 |
|
|
|
|
1.86 |
|
|
|
|
46.7 |
|
|
|
|
1.1 |
|
|
|
|
2.30 |
|
|
|
|
7.3 |
+ |
|
U.S. government agencies |
|
|
|
2,446.6 |
|
|
|
|
130.4 |
|
|
|
|
5.33 |
|
|
|
|
2,618.9 |
|
|
|
|
146.0 |
|
|
|
|
5.57 |
|
|
|
|
6.6 |
- |
|
States and municipalities |
|
|
|
51.9 |
|
|
|
|
1.1 |
|
|
|
|
2.10 |
|
|
|
|
37.8 |
|
|
|
|
1.8 |
|
|
|
|
4.92 |
|
|
|
|
37.3 |
+ |
|
Other |
|
|
|
303.5 |
|
|
|
|
9.7 |
|
|
|
|
3.18 |
|
|
|
|
260.6 |
|
|
|
|
13.9 |
|
|
|
|
5.32 |
|
|
|
|
16.5 |
+ |
|
|
|
|
Total investment securities |
|
|
|
2,852.1 |
|
|
|
|
142.1 |
|
|
|
|
4.98 |
|
|
|
|
2,964.0 |
|
|
|
|
162.8 |
|
|
|
|
5.49 |
|
|
|
|
3.8 |
- |
|
|
|
|
Capital markets securities inventory |
|
|
|
974.2 |
|
|
|
|
36.9 |
|
|
|
|
3.79 |
|
|
|
|
1,519.3 |
|
|
|
|
69.5 |
|
|
|
|
4.57 |
|
|
|
|
35.9 |
- |
|
Mortgage banking trading securities |
|
|
|
131.9 |
|
|
|
|
16.5 |
|
|
|
|
12.47 |
|
|
|
|
350.5 |
|
|
|
|
45.5 |
|
|
|
|
12.98 |
|
|
|
|
62.4 |
- |
|
Other earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased under agreements to resell |
|
|
|
675.1 |
|
|
|
|
1.0 |
|
|
|
|
.14 |
|
|
|
|
1,175.7 |
|
|
|
|
23.0 |
|
|
|
|
1.96 |
|
|
|
|
42.6 |
- |
|
Interest-bearing cash |
|
|
|
614.4 |
|
|
|
|
1.4 |
|
|
|
|
.23 |
|
|
|
|
168.0 |
|
|
|
|
1.6 |
|
|
|
|
.98 |
|
|
|
|
NM |
|
|
|
|
Total other earning assets |
|
|
|
1,289.5 |
|
|
|
|
2.4 |
|
|
|
|
.18 |
|
|
|
|
1,343.7 |
|
|
|
|
24.6 |
|
|
|
|
1.84 |
|
|
|
|
4.0 |
- |
|
|
|
|
Total earning assets |
|
|
|
25,373.8 |
|
|
|
|
994.0 |
|
|
|
|
3.92 |
|
|
|
|
30,426.2 |
|
|
|
|
1,608.1 |
|
|
|
|
5.29 |
|
|
|
|
16.6 |
- |
|
Allowance for loan losses |
|
|
|
(955.6 |
) |
|
|
|
|
|
|
|
|
(563.1 |
) |
|
|
|
|
|
|
|
|
69.7 |
- |
|
Cash and due from banks |
|
|
|
436.7 |
|
|
|
|
|
|
|
|
653.9 |
|
|
|
|
|
|
|
|
33.2 |
- |
|
Capital markets receivables |
|
|
|
202.9 |
|
|
|
|
|
|
|
|
294.7 |
|
|
|
|
|
|
|
|
31.2 |
- |
|
Premises and equipment, net |
|
|
|
325.2 |
|
|
|
|
|
|
|
|
359.4 |
|
|
|
|
|
|
|
|
9.5 |
- |
|
Other assets |
|
|
|
2,764.8 |
|
|
|
|
|
|
|
|
3,251.6 |
|
|
|
|
|
|
|
|
15.0 |
- |
|
|
|
|
Total assets/Interest income |
|
|
$ |
|
28,147.8 |
|
|
|
$ |
|
994.0 |
|
|
|
|
|
$ |
|
34,422.7 |
|
|
|
$ |
|
1,608.1 |
|
|
|
|
|
|
18.2 |
- |
|
|
|
|
Liabilities and shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
$ |
|
4,507.8 |
|
|
|
$ |
|
38.9 |
|
|
|
|
.86 |
% |
|
|
|
$ |
|
4,274.9 |
|
|
|
$ |
|
79.9 |
|
|
|
|
1.87 |
% |
|
|
|
|
5.4 |
+ |
|
Time deposits |
|
|
|
2,163.1 |
|
|
|
|
60.9 |
|
|
|
|
2.81 |
|
|
|
|
2,549.7 |
|
|
|
|
101.2 |
|
|
|
|
3.97 |
|
|
|
|
15.2 |
- |
|
Other interest bearing deposits |
|
|
|
2,030.9 |
|
|
|
|
5.0 |
|
|
|
|
.25 |
|
|
|
|
1,816.8 |
|
|
|
|
13.9 |
|
|
|
|
.76 |
|
|
|
|
11.8 |
+ |
|
|
|
|
Total interest-bearing core deposits |
|
|
|
8,701.8 |
|
|
|
|
104.8 |
|
|
|
|
1.20 |
|
|
|
|
8,641.4 |
|
|
|
|
195.0 |
|
|
|
|
2.26 |
|
|
|
|
* |
|
Certificates of deposit $100,000 and more |
|
|
|
1,369.2 |
|
|
|
|
27.7 |
|
|
|
|
2.02 |
|
|
|
|
2,012.0 |
|
|
|
|
76.3 |
|
|
|
|
3.79 |
|
|
|
|
31.9 |
- |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
|
|
2,486.3 |
|
|
|
|
5.2 |
|
|
|
|
.21 |
|
|
|
|
3,414.3 |
|
|
|
|
69.8 |
|
|
|
|
2.04 |
|
|
|
|
27.2 |
- |
|
Capital markets trading liabilities |
|
|
|
536.2 |
|
|
|
|
20.9 |
|
|
|
|
3.89 |
|
|
|
|
702.4 |
|
|
|
|
33.2 |
|
|
|
|
4.73 |
|
|
|
|
23.7 |
- |
|
Other short-term borrowings and commercial paper |
|
|
|
2,663.0 |
|
|
|
|
7.6 |
|
|
|
|
.29 |
|
|
|
|
5,138.5 |
|
|
|
|
119.7 |
|
|
|
|
2.33 |
|
|
|
|
48.2 |
- |
|
Long-term debt |
|
|
|
3,506.9 |
|
|
|
|
50.2 |
|
|
|
|
1.43 |
|
|
|
|
6,108.6 |
|
|
|
|
217.6 |
|
|
|
|
3.56 |
|
|
|
|
42.6 |
- |
|
|
|
|
Total interest-bearing liabilities |
|
|
|
19,263.4 |
|
|
|
|
216.4 |
|
|
|
|
1.12 |
|
|
|
|
26,017.2 |
|
|
|
|
711.6 |
|
|
|
|
2.74 |
|
|
|
|
26.0 |
- |
|
Noninterest-bearing deposits |
|
|
|
4,485.0 |
|
|
|
|
|
|
|
|
4,267.5 |
|
|
|
|
|
|
|
|
5.1 |
+ |
|
Capital markets payables |
|
|
|
139.9 |
|
|
|
|
|
|
|
|
269.5 |
|
|
|
|
|
|
|
|
48.1 |
- |
|
Other liabilities |
|
|
|
807.4 |
|
|
|
|
|
|
|
|
937.9 |
|
|
|
|
|
|
|
|
13.9 |
- |
|
|
|
|
Total liabilities |
|
|
|
24,695.7 |
|
|
|
|
|
|
|
|
31,492.1 |
|
|
|
|
|
|
|
|
21.6 |
- |
|
Shareholders equity |
|
|
|
3,156.9 |
|
|
|
|
|
|
|
|
2,635.4 |
|
|
|
|
|
|
|
|
19.8 |
+ |
|
Noncontrolling interest (Note 12) |
|
|
|
295.2 |
|
|
|
|
|
|
|
|
295.2 |
|
|
|
|
|
|
|
|
* |
|
|
|
|
Total equity |
|
|
|
3,452.1 |
|
|
|
|
|
|
|
|
2,930.6 |
|
|
|
|
|
|
|
|
17.8 |
+ |
|
Total liabilities and equity/Interest expense |
|
|
$ |
|
28,147.8 |
|
|
|
$ |
|
216.4 |
|
|
|
|
|
$ |
|
34,422.7 |
|
|
|
$ |
|
711.6 |
|
|
|
|
|
|
18.2 |
- |
|
|
|
|
Net interest income-tax equivalent basis/Yield |
|
|
|
|
$ |
|
777.6 |
|
|
|
|
3.06 |
% |
|
|
|
|
|
$ |
|
896.5 |
|
|
|
|
2.95 |
% |
|
|
|
Fully taxable equivalent adjustment |
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
|
776.5 |
|
|
|
|
|
|
|
$ |
|
895.1 |
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
2.80 |
% |
|
|
|
|
|
|
|
|
2.55 |
% |
|
|
|
Effect of interest-free sources used to fund earning assets |
|
|
|
|
|
|
|
.26 |
|
|
|
|
|
|
|
|
.40 |
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
3.06 |
% |
|
|
|
|
|
|
|
|
2.95 |
% |
|
|
|
|
|
|
Certain previously reported amounts have been reclassified to agree with current presentation.
Yields and corresponding income amounts are adjusted to a fully taxable equivalent. Earning assets yields are expressed net of unearned income.
Rates are expressed net of unamortized debenture cost for long-term debt. Net interest margin is computed using total net interest income.
160
FIRST HORIZON NATIONAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Average Balance Growth(%) |
|
Average Balance |
|
Interest Income/ Expense |
|
Average Yields/ Rates |
|
Average Balance |
|
Interest Income/ Expense |
|
Average Yields/ Rates |
|
Average Balance |
|
Interest Income/ Expense |
|
Average Yields/ Rates |
|
Average Balance |
|
Interest Income/ Expense |
|
Average Yields/ Rates |
|
09/04 (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
22,106.7 |
|
|
|
$ |
|
1,622.3 |
|
|
|
|
7.34 |
% |
|
|
|
$ |
|
21,504.2 |
|
|
|
$ |
|
1,591.4 |
|
|
|
|
7.40 |
% |
|
|
|
$ |
|
18,334.7 |
|
|
|
$ |
|
1,133.9 |
|
|
|
|
6.18 |
% |
|
|
|
$ |
|
15,440.5 |
|
|
|
$ |
|
775.1 |
|
|
|
|
5.02 |
% |
|
|
|
|
4.9 |
+ |
|
|
|
|
|
3,876.2 |
|
|
|
|
253.6 |
|
|
|
|
6.54 |
|
|
|
|
4,336.6 |
|
|
|
|
288.2 |
|
|
|
|
6.64 |
|
|
|
|
5,980.1 |
|
|
|
|
377.9 |
|
|
|
|
6.32 |
|
|
|
|
4,123.5 |
|
|
|
|
226.8 |
|
|
|
|
5.50 |
|
|
|
|
33.2 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.0 |
|
|
|
|
4.8 |
|
|
|
|
4.83 |
|
|
|
|
56.8 |
|
|
|
|
2.7 |
|
|
|
|
4.72 |
|
|
|
|
41.7 |
|
|
|
|
1.1 |
|
|
|
|
2.57 |
|
|
|
|
48.4 |
|
|
|
|
.8 |
|
|
|
|
1.67 |
|
|
|
|
* |
|
|
|
|
|
3,033.2 |
|
|
|
|
172.0 |
|
|
|
|
5.67 |
|
|
|
|
3,161.5 |
|
|
|
|
173.3 |
|
|
|
|
5.48 |
|
|
|
|
2,635.3 |
|
|
|
|
115.1 |
|
|
|
|
4.37 |
|
|
|
|
2,194.9 |
|
|
|
|
95.6 |
|
|
|
|
4.35 |
|
|
|
|
2.2 |
+ |
|
|
|
|
|
1.8 |
|
|
|
|
- |
|
|
|
|
.90 |
|
|
|
|
1.9 |
|
|
|
|
- |
|
|
|
|
1.26 |
|
|
|
|
4.7 |
|
|
|
|
.2 |
|
|
|
|
5.01 |
|
|
|
|
10.8 |
|
|
|
|
.7 |
|
|
|
|
6.52 |
|
|
|
|
36.9 |
+ |
|
|
|
|
|
246.2 |
|
|
|
|
12.0 |
|
|
|
|
4.89 |
|
|
|
|
261.3 |
|
|
|
|
12.8 |
|
|
|
|
4.90 |
|
|
|
|
224.5 |
|
|
|
|
9.4 |
|
|
|
|
4.21 |
|
|
|
|
217.0 |
|
|
|
|
7.9 |
|
|
|
|
3.65 |
|
|
|
|
6.9 |
+ |
|
|
|
|
|
|
|
|
3,380.2 |
|
|
|
|
188.8 |
|
|
|
|
5.59 |
|
|
|
|
3,481.5 |
|
|
|
|
188.8 |
|
|
|
|
5.42 |
|
|
|
|
2,906.2 |
|
|
|
|
125.8 |
|
|
|
|
4.33 |
|
|
|
|
2,471.1 |
|
|
|
|
105.0 |
|
|
|
|
4.25 |
|
|
|
|
2.9 |
+ |
|
|
|
|
|
|
|
|
2,172.9 |
|
|
|
|
115.0 |
|
|
|
|
5.29 |
|
|
|
|
2,394.0 |
|
|
|
|
127.5 |
|
|
|
|
5.33 |
|
|
|
|
2,155.6 |
|
|
|
|
101.4 |
|
|
|
|
4.70 |
|
|
|
|
753.1 |
|
|
|
|
26.8 |
|
|
|
|
3.56 |
|
|
|
|
5.3 |
+ |
|
|
|
|
|
483.9 |
|
|
|
|
59.4 |
|
|
|
|
12.28 |
|
|
|
|
403.0 |
|
|
|
|
43.7 |
|
|
|
|
10.84 |
|
|
|
|
303.5 |
|
|
|
|
37.2 |
|
|
|
|
12.27 |
|
|
|
|
221.3 |
|
|
|
|
26.7 |
|
|
|
|
12.05 |
|
|
|
|
9.8 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,355.0 |
|
|
|
|
65.7 |
|
|
|
|
4.85 |
|
|
|
|
1,892.5 |
|
|
|
|
89.2 |
|
|
|
|
4.71 |
|
|
|
|
2,288.0 |
|
|
|
|
64.8 |
|
|
|
|
2.83 |
|
|
|
|
722.2 |
|
|
|
|
7.4 |
|
|
|
|
1.03 |
|
|
|
|
1.3 |
- |
|
|
|
|
|
30.5 |
|
|
|
|
1.8 |
|
|
|
|
5.97 |
|
|
|
|
30.5 |
|
|
|
|
1.5 |
|
|
|
|
5.02 |
|
|
|
|
8.1 |
|
|
|
|
.3 |
|
|
|
|
3.47 |
|
|
|
|
8.6 |
|
|
|
|
.1 |
|
|
|
|
1.04 |
|
|
|
|
NM |
|
|
|
|
|
|
|
|
1,385.5 |
|
|
|
|
67.5 |
|
|
|
|
4.88 |
|
|
|
|
1,923.0 |
|
|
|
|
90.7 |
|
|
|
|
4.72 |
|
|
|
|
2,296.1 |
|
|
|
|
65.1 |
|
|
|
|
2.83 |
|
|
|
|
730.8 |
|
|
|
|
7.5 |
|
|
|
|
1.03 |
|
|
|
|
12.0 |
+ |
|
|
|
|
|
|
|
|
33,405.4 |
|
|
|
|
2,306.6 |
|
|
|
|
6.91 |
|
|
|
|
34,042.3 |
|
|
|
|
2,330.3 |
|
|
|
|
6.85 |
|
|
|
|
31,976.2 |
|
|
|
|
1,841.3 |
|
|
|
|
5.75 |
|
|
|
|
23,740.3 |
|
|
|
|
1,167.9 |
|
|
|
|
4.91 |
|
|
|
|
1.3 |
+ |
|
|
|
|
|
(234.1 |
) |
|
|
|
|
|
|
|
|
(204.7 |
) |
|
|
|
|
|
|
|
|
(175.3 |
) |
|
|
|
|
|
|
|
|
(165.2 |
) |
|
|
|
|
|
|
|
|
42.1 |
- |
|
|
|
|
|
821.5 |
|
|
|
|
|
|
|
|
787.4 |
|
|
|
|
|
|
|
|
726.0 |
|
|
|
|
|
|
|
|
717.2 |
|
|
|
|
|
|
|
|
9.4 |
- |
|
|
|
|
|
156.8 |
|
|
|
|
|
|
|
|
173.1 |
|
|
|
|
|
|
|
|
574.0 |
|
|
|
|
|
|
|
|
212.2 |
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
433.7 |
|
|
|
|
|
|
|
|
432.3 |
|
|
|
|
|
|
|
|
394.2 |
|
|
|
|
|
|
|
|
364.4 |
|
|
|
|
|
|
|
|
2.3 |
- |
|
|
|
|
|
3,592.1 |
|
|
|
|
|
|
|
|
3,534.2 |
|
|
|
|
|
|
|
|
3,065.3 |
|
|
|
|
|
|
|
|
2,436.9 |
|
|
|
|
|
|
|
|
2.6 |
+ |
|
|
|
|
|
|
|
$ |
|
38,175.4 |
|
|
|
$ |
|
2,306.6 |
|
|
|
|
|
$ |
|
38,764.6 |
|
|
|
$ |
|
2,330.3 |
|
|
|
|
|
$ |
|
36,560.4 |
|
|
|
$ |
|
1,841.3 |
|
|
|
|
|
$ |
|
27,305.8 |
|
|
|
$ |
|
1,167.9 |
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
3,567.6 |
|
|
|
$ |
|
115.9 |
|
|
|
|
3.25 |
% |
|
|
|
$ |
|
3,191.4 |
|
|
|
$ |
|
88.5 |
|
|
|
|
2.77 |
% |
|
|
|
$ |
|
2,843.1 |
|
|
|
$ |
|
44.4 |
|
|
|
|
1.56 |
% |
|
|
|
$ |
|
2,614.4 |
|
|
|
$ |
|
19.6 |
|
|
|
|
.75 |
% |
|
|
|
|
11.5 |
+ |
|
|
|
|
|
2,909.0 |
|
|
|
|
136.6 |
|
|
|
|
4.69 |
|
|
|
|
2,795.3 |
|
|
|
|
120.3 |
|
|
|
|
4.30 |
|
|
|
|
2,242.8 |
|
|
|
|
79.0 |
|
|
|
|
3.52 |
|
|
|
|
1,947.0 |
|
|
|
|
60.1 |
|
|
|
|
3.08 |
|
|
|
|
2.1 |
+ |
|
|
|
|
|
1,845.6 |
|
|
|
|
25.9 |
|
|
|
|
1.40 |
|
|
|
|
1,848.1 |
|
|
|
|
24.5 |
|
|
|
|
1.32 |
|
|
|
|
1,770.5 |
|
|
|
|
15.5 |
|
|
|
|
.87 |
|
|
|
|
1,525.5 |
|
|
|
|
4.8 |
|
|
|
|
.32 |
|
|
|
|
5.9 |
+ |
|
|
|
|
|
|
|
|
8,322.2 |
|
|
|
|
278.4 |
|
|
|
|
3.34 |
|
|
|
|
7,834.8 |
|
|
|
|
233.3 |
|
|
|
|
2.98 |
|
|
|
|
6,856.4 |
|
|
|
|
138.9 |
|
|
|
|
2.03 |
|
|
|
|
6,086.9 |
|
|
|
|
84.5 |
|
|
|
|
1.39 |
|
|
|
|
7.4 |
+ |
|
|
|
|
|
6,892.3 |
|
|
|
|
369.3 |
|
|
|
|
5.36 |
|
|
|
|
9,747.7 |
|
|
|
|
493.2 |
|
|
|
|
5.06 |
|
|
|
|
10,896.3 |
|
|
|
|
364.1 |
|
|
|
|
3.34 |
|
|
|
|
6,875.3 |
|
|
|
|
108.0 |
|
|
|
|
1.57 |
|
|
|
|
27.6 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,853.6 |
|
|
|
|
229.1 |
|
|
|
|
4.72 |
|
|
|
|
4,562.9 |
|
|
|
|
208.9 |
|
|
|
|
4.58 |
|
|
|
|
4,582.2 |
|
|
|
|
136.6 |
|
|
|
|
2.98 |
|
|
|
|
3,685.2 |
|
|
|
|
45.1 |
|
|
|
|
1.22 |
|
|
|
|
7.6 |
- |
|
|
|
|
|
950.6 |
|
|
|
|
51.5 |
|
|
|
|
5.42 |
|
|
|
|
1,338.9 |
|
|
|
|
76.1 |
|
|
|
|
5.68 |
|
|
|
|
1,519.3 |
|
|
|
|
80.2 |
|
|
|
|
5.28 |
|
|
|
|
527.0 |
|
|
|
|
20.0 |
|
|
|
|
3.80 |
|
|
|
|
* |
|
|
|
|
|
1,345.7 |
|
|
|
|
65.0 |
|
|
|
|
4.83 |
|
|
|
|
795.0 |
|
|
|
|
40.0 |
|
|
|
|
5.04 |
|
|
|
|
994.8 |
|
|
|
|
35.3 |
|
|
|
|
3.55 |
|
|
|
|
136.7 |
|
|
|
|
2.7 |
|
|
|
|
1.96 |
|
|
|
|
81.1 |
+ |
|
|
|
|
|
6,567.7 |
|
|
|
|
372.0 |
|
|
|
|
5.67 |
|
|
|
|
5,062.4 |
|
|
|
|
280.7 |
|
|
|
|
5.55 |
|
|
|
|
2,560.1 |
|
|
|
|
101.1 |
|
|
|
|
3.96 |
|
|
|
|
2,248.0 |
|
|
|
|
50.2 |
|
|
|
|
2.24 |
|
|
|
|
9.3 |
+ |
|
|
|
|
|
|
|
|
28,932.1 |
|
|
|
|
1,365.3 |
|
|
|
|
4.72 |
|
|
|
|
29,341.7 |
|
|
|
|
1,332.2 |
|
|
|
|
4.54 |
|
|
|
|
27,409.1 |
|
|
|
|
856.2 |
|
|
|
|
3.12 |
|
|
|
|
19,559.1 |
|
|
|
|
310.5 |
|
|
|
|
1.59 |
|
|
|
|
* |
|
|
|
|
|
5,099.3 |
|
|
|
|
|
|
|
|
5,169.2 |
|
|
|
|
|
|
|
|
5,263.1 |
|
|
|
|
|
|
|
|
4,673.3 |
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
179.3 |
|
|
|
|
|
|
|
|
231.8 |
|
|
|
|
|
|
|
|
404.0 |
|
|
|
|
|
|
|
|
174.9 |
|
|
|
|
|
|
|
|
4.4 |
- |
|
|
|
|
|
1,245.9 |
|
|
|
|
|
|
|
|
1,303.6 |
|
|
|
|
|
|
|
|
1,077.3 |
|
|
|
|
|
|
|
|
960.3 |
|
|
|
|
|
|
|
|
3.4 |
- |
|
|
|
|
|
|
|
|
35,456.6 |
|
|
|
|
|
|
|
|
36,046.3 |
|
|
|
|
|
|
|
|
34,153.5 |
|
|
|
|
|
|
|
|
25,367.6 |
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
2,423.5 |
|
|
|
|
|
|
|
|
2,423.0 |
|
|
|
|
|
|
|
|
2,177.0 |
|
|
|
|
|
|
|
|
1,937.7 |
|
|
|
|
|
|
|
|
10.3 |
+ |
|
|
|
|
|
295.3 |
|
|
|
|
|
|
|
|
295.3 |
|
|
|
|
|
|
|
|
229.9 |
|
|
|
|
|
|
|
|
.5 |
|
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
2,718.8 |
|
|
|
|
|
|
|
|
2,718.3 |
|
|
|
|
|
|
|
|
2,406.9 |
|
|
|
|
|
|
|
|
1,938.2 |
|
|
|
|
|
|
|
|
12.2 |
+ |
|
|
|
|
$ |
|
38,175.4 |
|
|
|
$ |
|
1,365.3 |
|
|
|
|
|
$ |
|
38,764.6 |
|
|
|
$ |
|
1,332.2 |
|
|
|
|
|
$ |
|
36,560.4 |
|
|
|
$ |
|
856.2 |
|
|
|
|
|
$ |
|
27,305.8 |
|
|
|
$ |
|
310.5 |
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
$ |
|
941.3 |
|
|
|
|
2.82 |
% |
|
|
|
|
|
$ |
|
998.1 |
|
|
|
|
2.93 |
% |
|
|
|
|
|
$ |
|
985.1 |
|
|
|
|
3.08 |
% |
|
|
|
|
|
$ |
|
857.4 |
|
|
|
|
3.61 |
% |
|
|
|
|
|
|
|
|
|
(.7 |
) |
|
|
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
940.6 |
|
|
|
|
|
|
|
$ |
|
996.9 |
|
|
|
|
|
|
|
$ |
|
984.0 |
|
|
|
|
|
|
|
$ |
|
856.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.19 |
% |
|
|
|
|
|
|
|
|
2.31 |
% |
|
|
|
|
|
|
|
|
2.63 |
% |
|
|
|
|
|
|
|
|
3.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.63 |
|
|
|
|
|
|
|
|
.62 |
|
|
|
|
|
|
|
|
.45 |
|
|
|
|
|
|
|
|
.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.82 |
% |
|
|
|
|
|
|
|
|
2.93 |
% |
|
|
|
|
|
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
3.61 |
% |
|
|
|
|
|
|
|
* |
|
|
|
Amount less than one percent. |
|
(a) |
|
|
|
Includes loans on nonaccrual status. |
|
(b) |
|
|
|
Compound annual growth rate.
|
NM not meaningful
161
FIRST HORIZON NATIONAL CORPORATION
Total Shareholder Return Performance Graph
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings by reference, including this annual report, in whole or in part, the following Total
Shareholder Return Performance Graph shall not be incorporated by reference into any such filings.
The following graph compares the yearly percentage change in our cumulative total shareholder return with returns based on the Standard and Poors 500 index and a peer group consisting of the top 30 bank holding companies in the U.S. based on reported asset size as of December 31, 2009.
![](c60287tsr.jpg)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
First Horizon National Corp |
|
|
$ |
|
100.00 |
|
|
|
$ |
|
93.16 |
|
|
|
$ |
|
105.61 |
|
|
|
$ |
|
50.43 |
|
|
|
$ |
|
33.19 |
|
|
|
$ |
|
45.24 |
|
Top 30 Banks |
|
|
|
100.00 |
|
|
|
|
102.83 |
|
|
|
|
121.93 |
|
|
|
|
102.61 |
|
|
|
|
73.31 |
|
|
|
|
74.01 |
|
S&P 500 Index |
|
|
|
100.00 |
|
|
|
|
108.99 |
|
|
|
|
112.27 |
|
|
|
|
127.55 |
|
|
|
|
132.06 |
|
|
|
|
81.23 |
|
|
Source: SNL
The preceding graph assumes $100 is invested on December 31, 2004 and dividends are reinvested. Returns are market-capitalization weighted.
The Top 30 consists of the following (with First Horizon excluded): Associated Banc-Corp, Bank of America Corporation, Bank of New York Mellon Corporation, BB&T Corporation, BOK Financial Corporation, Capital One Financial Corporation, Citigroup Inc., City National Corporation, Comerica Incorporated, Commerce
Bancshares, Inc., East West Bancorp, Inc., Fifth Third Bancorp, First Citizens BancShares, Inc., Huntington Bancshares Incorporated, JPMorgan Chase & Co., KeyCorp, M&T Bank Corporation, Marshall & Ilsley Corporation, Northern Trust Corporation, PNC Financial Services Group, Inc., Popular, Inc., Regions Financial
Corporation, State Street Corporation, SunTrust Banks, Inc., Synovus Financial Corp., TCF Financial Corporation, U.S. Bancorp, Wells Fargo & Company, and Zions Bancorporation.
162
FIRST HORIZON NATIONAL CORPORATION
GRAPHIC
7
c60287tsr.jpg
GRAPHIC
begin 644 c60287tsr.jpg
M_]C_X``02D9)1@`!`0$`9`!D``#_VP!#``@&!@<&!0@'!P<)"0@*#!0-#`L+
M#!D2$P\4'1H?'AT:'!P@)"XG("(L(QP<*#7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7&
MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$!
M`0$!`0````````$"`P0%!@<("0H+_\0`M1$``@$"!`0#!`<%!`0``0)W``$"
M`Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF
M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$
MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4
MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H`#`,!``(1`Q$`/P#W^BBB@`HH
MHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB
M@`HHHH`XOQKK/BC1]3T=-%?1_LNHW266+V"5W65ED;=E74;<(!C&3BNGU[0?[;FT>3[3Y/
M]FZ@E]C9N\S:CKMZC'W\YYZ=*Y6[^%XO+V^,FM.+"=[Z:&W6V&^*6[C:.0E]
MWS*`[$#`Z\DXH`T)/B+8VUGIUU=Z5J\5O=I"7N3:%(8&D;:H)PKE-2^%E[JS6S7OB*&4
MP06T*[M.!V>3)NS'F3]WN``;&2<=+77Z#X?_L2TU.#[6TOVZ_N;S>J;#'Y
MKEMHY.2,]>_H*`..TCQ[XAO-`\2:I=6^D1MIMC/.MFID$]K,@8K'.C$;@0`=
MR[0>WJ-G3OB%!>:/-WED@FLA+%((K<0X92^&Z;QG@'J&Q0!IGXEZ)Y5C,D&H26]WISZEYR0`K#`A
M`8OSD8SS@&LZ[^*$4VGPSZ9I]RMPNH64$]K=Q`R&&X;AD".06(#8YX(Y%3:=
M\,HK.PM[*?5&FACT*?17V0;"ZRN&,@.XX(`QCGKG/:H]-^&(L+&"W.H62M#?
MV=WNM-*CMPPMVR%;:=S,W.69CC/`'.0"U)\4=&32[6^2QU28303W,D4<"E[:
M&%S')))\V,*P(^4L?0&C_A8$=M?Z[]I@:XM+6[LK:Q6TCS+.UQ$C*/F8#.7]
MN/>J$GPME73(K6UU\P2&UO+&YD-H'$MO<3&5E52WR,,X#9/TJ[=?#D2?;WM-
M5,$DUY8WELS6^\0-;(B*&&X;P=F?X>M`%.P^*MK%X=LK[5[2=[N=;N:2.RAX
MA@AG:,R,';I@#(!)SG`KIM-\6V6K>(;S2+.UO7-HJ-)=>6!!\\:R*`V3E^$:/8Z=$-4MI+BT2YB:6\TN.Y1DFF,N5C:M:Q\7])L=-U&>TLKR:2WCE:V:6/;%=F.0(^P
MJ2P`+W/S9((7[V>,]*S3\
M'[?[-JUHNHVR6]Y%,D3KI<7VA#(^_+S??D`Y``V\<'.!0!T+_$#2H[XVC6FH
MK*)K*$B2`(0UT6$>58AAC:=V0".P-9Y^*FE_9X)TT;6W2XDGCA*V\?[PQ"0O
MM)?!`\MOS&<?#V^O_$$.K3Z^FXS6%Q=1K8X$TEJS,"IW_(&W'CG'J>E2
M1?#KRM-T>S_M7/\`9LE_)O\`L_\`K/M(E&,;N-OF^^=O;/`!U^F:A!JVDV>I
M6N[[/=P)/%NM=0PR.QP:M5GZ%IG]B>'M,TGSO.^PVD5MYNW;OV(%W8R<9Q
MG&36A0`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`
M%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4
M444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110!E>()M;BL(QH%O
M:2WDDRHSW;$1PISN<@$%L8`P#GFN+L_''B+5[;1K*PM]*34]0FO4^U2B1K5X
M[9@I=%!#$/N&,GC!ZUU7C'0+[Q+H)TRQU?\`LSS)%,\GD>;YL0SF,@,I`)QD
M@]`1WK+G\&:K):Z--%K\%OJ^E"6.&ZBTU1"8I``4\G?@8"K@ANWO0!A6_P`0
MO$6M6\8TFSTN"XM].EOKW[7YCH^R:2$I'M((R86.3G`(XJU_PLFZU"_\,C2;
M&)K#4);>*_GE);R9)H3*L2$$`NJC+'D#*C&3Q(/AE/96T":/XADLYC9/97DL
MMHLWGH\CRL0,C8V^1\=1@@8XJ6[^$7A::'1XH-.LXOL$T;S.]L'>[C2,IL<\
M=>5Z4`=1X@FUN*PC&@6]I+>23*C/=L1'"G.YR`06Q@#`.>:XNT\<^(]6
MM=&L]/MM*75+^:]7[3*)&M9([9@I>,`AL.6&,GC!ZUM^(O`L6HZ9?6VA7$&A
MSZC<++J%Q%:[S=J-Q*/AE/)8Y.3OP,!4P0W;IS0!@2_$O6[_28+_2+#3XQ#H7]M7J79=MRAG4QQE2,'
M]V_S'/4<=:FU3XE:A;:K/+;0:N.V:\U^%T:SV6O\`AVT":5?/(TKZCI=QYL3Q
M_:94_=J^1&<*RJ3R5VMV%`'L]%>!1:KJ-G\$-+TFRMM5:&Z74#=WUK;O,8HT
MFE^4D#Y2YP"QZ+N-4KV[LM3\/:<-4:>V@L/!(GTU;AV@_P!-3Y1)&,C&=-D6>&"_>VB:9KB`RC<4&X;0ZG.?>J>K2^(]+T:^
MU#^T=*D^RV\DVS^SI!NVJ6QGS^,XH`Z.BBB@`HHHH`****`"BBB@`HHHH`**
M**`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHH
MH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@
M`HHHH`****`"BBB@`HHHH`****`"BBB@!LD:2QO'(BO&X*LK#(8'J"/2L_1=
M`TKP]:R6VDV$%I%)*\K+$@7+,Q;MV&<`=A@#@5I44`58=-L+;3SI\%E;161#
M*;=(E6,AB2PV@8Y).?7)J*;0M(N8+2"?2K&6&SQ]EC>W1E@P,#8"/EP``,>E
M7Z*`"LCQ7_R)VN?]@^?_`-%M6O61XK_Y$[7/^P?/_P"BVH`UZ***`"BBB@`H
MHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BD
M9E1=S$`#N335FB8@+(A)[!A0`^BBB@`HHHH`****`"BBD)`!).`.I-`"T5CS
M>*=$AE:%=0CN)U.&AM%:XD'U2,,WZ5Q'Q4UGQ!>?#W41H>CZI`F%\^Y<+&PA
MS\VU0WF>FGYS17RM\"CXG?QI(FD3&.S,+?;6G1I(0/XV:^CS9^)'P'UK3E&GS3$?I0!M45B+H^KMCSO$UV.#GR+:!>?^
M!(U#>'[F1<3>)-8D^7;D-#'^/R1KS0!MT5B_\(Q:-GS;W5Y,X_YBEPF,?[KB
MD;PEHTAS-!/.<[O](NYIG`H`J-XO\-*2/^$@THL!
MDJMY&6Q]`B:U%'J3:KK<%PXCL-3@^RR6P,[KF1@,%<`$JH^4JR`],>C:GIT&K:7A
MZ3I`U75X;72YY;B#RI8LM([E]S9C()4L=O`P#WJUJGPXT[6(;9;W5-8>>*W:
MTFN5N0LEW`S;C'*0N"N?0`^]`&Y;:T)?#]AJKVUP_P!JACE\NWB,C+O4-T':
ML;Q/X@BE\)ZQ&-.U12]C.NY[)P!E#R3C@5U<,,=O!'#$@2.-0B*.@`&`*R_%
M?_(G:Y_V#Y__`$6U`&O1110`4444`%%%%`!1110`4444`%%%%`!1110`4444
M`%%%%`!1110`444$X&3TH`**@-W$3B,F4_\`3,;OUZ"C=1@JC\3
M6-+HFJ72(+O7KA@!\\5J@ME?_@0RX_!J2#P[HUK,)Y='66X4Y%S/FZD'_`W+
M/0`\^+=)DR+&2;46[?8('G4G_?4%!^+"C^TM>NL_8]"2V7L^H72J?J%C#Y^A
M(_"MF.:.7/ER*V.H!Y%/H`Q#IFN71_TO7O(7^YI]JJ<>A:3S"?J-OX4#PEH[
MD&\@DU%AWU"9[@9]E^&SY>K2M=:4#A-1(^>`=A.!U'_30>'F:?18OM&GYS)I8(&SU,!/"_[A^4]BISG7
MT[4K35K07-G,)(\E6&"&1AU5E/*L.X."*`+=%%%`!1110`4444`%%%%`!111
M0`4444`%%%%`!15>_OK?3-.NK^[?9;6L3S2OC.U%!)./H#7,^'?B#INNZ/>Z
MI<6EWI5K9ER\M\@6,H'9,AP2";P?:^)8HKV2UO
M)S;VMND(,\\GF-&%5X2TU6>1UF>:VBMH:I,C2165M
M)<.B?>8(I8@9[\5Y1:_M%Z!=7D-NNC:FK2R*@),>`2CR&&$?B'D#8_`TS^UMSKDP
M_>:[I4(;M;V3,P_X$TI'_CM)_9LDIQ<>)M5F'4I&(HE'T*1AO_'J`.BJK=ZG
M8:>,WM];6P]9I53^9K'_`.$=T1T_TB/4+Q?2ZN+F<'MT9B/R%6[72=#L'W66
MBVT#9SF&R"<_@HH`C_X2_07_`./?4%O.,C[#&]SGZ>6&SUK'\5>+KZU\*:K=
MZ+H^J27,-M(\RHQ^1S0!\N?#KQ_XUD\>Z?%%J-[JINY?+EM+FX9D=3U/.=NT#.X#@
M#TR*^FOM7B8LN-(TG:1\V=4DR/P^S\_G7*:+I6GZ=J\5QI]A:6MQ(X5I8851
MF!(R"0`2#WKO?(D?_6SL?]F/Y1_C^M`&/+<>)E0EHM$@)/&ZXE?`S_N+DX^E
M-#>*)6/EW.F*N.";&4C/XRKQ],UNQP11'*1J&/5LT19M3L4
MN!]YX+)MI_!I#C\ZJG0=6D9VF\0R%C]T+:1X7Z!]U=#10!BC1+\,I_X2?5@`
M,;1%:X/_`)!II\.RNN)-?UE^7);CK]_\Z\B\+?"?QSX?\5Z3K%YH+FUL
MKJ.>817,+OL5@3M4/DG`Z#DT`?4U%5[&^M=2LX[NSG2:"095T/'H1[$'@@\@
MC!JQ0`4444`1R0Q2_P"LC5B.A(Y'XTSR'3_53N/9_G'Z\_K4]%`$'F7"??A#
MCUC;G\C_`(FE6ZA)"EMC'^%QM/ZU-2,JLI5@"#V(H`6BH/LJ+_JF>+_'Y=
M/TJAJ\EW;6!99A]X#Y&;CI744`%%%%`!
M1110`4444`%%%%`!1110`4444`%8^HZ*[W9U/2IQ::G@!F()BN`.BRJ.OH&'
MS+V.,@[%%`&7I>M)?2O9W,#66I1+F6TD;)Q_>1NCI_M#Z$`\5J50U32+75X$
M2<.DL3;X;B)MLL+?WD;L?T(X((XJA;ZO=:9<)8Z_L4NP2WU!!MBG)Z*P_P"6
M"YF>
M!U2"X.(Y25.%;V/0_6O.OA3X=U?3TU(:A836.CO+((=,NIQ.(Y5N)3E!SM4+
ML&:HFF.T/DJ"5D!&
M3CUK(C\$>+=.N=0UJ#2(;B\URWU""YL_MB+]C-Q*'1BQX<+CG'/IFO:Z*`,?
M2]!BM/"6F:'=DRK:6D-NS([)N,:A<@C![5D>)_#.E1>$]9D2&<,EC.PS=2GD
M1GL6KKZR/%?_`")VN?\`8/G_`/1;4`:P`50!T`P*6BB@`HHHH`RO$^GSZOX3
MUG3;;;]HO+&>WBWG"[GC91D^F37SE8_`#QE#J%M+,VF^4DJL^+ELX!&?X:^H
MJ*`.:B\%6-J?]!OM0M1V"RK(!SG_`):*U/\`^$=U&$#[/KK-C_GZL8'[?["I
M]:Z*B@#`^Q^(X3E+G1)_]DV,D)[=_,;W[5(MSXDB&&TC2Y%'>+4'!/\`P$PX
M';^*MNB@#$&M:FB_OO#&HDXR?)GMW`X]Y%/Z4#Q-`IQ<:;K$!SC']G2R=_6,
M,*VZ*`,3_A+M!5MLVHI;$=1=HT&/KO`]*M6NOZ->_P#'IJUA/_URN4;^1K1J
MI=:7I]]G[98VUQGKYT*O_,4`6ZS/$.KZ=H.A76IZLY2P@`\U@A;@L%'`Y/)%
M5SX0\._\L]&LX#G.ZVC$)SG.W$P?
M$BY`C9RIXR>G;VH`BL/BQ\.KO4;6VM;F0W,TJ1Q?Z+(/G)`'./7%>CW%S;VD
M1EN9XX8P<;Y'"C\S7QWX>\`>+$\2Z4UQX:UB*`7D)DD-K(FU=XR=V!C`[]J^
ML[?POH5K)YL>DVAFSGSI(Q))_P!]MEOUH`B/B[1&)%M>&^(X(L(7NN?^V8;%
M)_;>HW`/V/P[?'TDNI(X$/\`X\7'_?-;F,#`HH`Q"OBBX)_>:18+Z!9+L_GF
M+'Y'\:3^P;R?'VWQ#J4H(^:.$QP)^!10X_[[KWE&V2%_[KKV/OT(Y
M!(.:OUDZIHQNYTO[&?['JD2[4N`NX.N<^7(O\2;+%_KH]R_WXQG\UZ_E
MFI8Y$E7=&X8>H-`#J***`"BBB@`HHHH`****`"BBB@`J*YMH+RVDMKF&.:"1
M2KQR*&5@>Q!ZBI:*`.&,X\^_T1>@YDN+0?J94_-Q_M#IO6UU!>VT=S:S
M1S02J&22-@RL/4$=:EK!N=(N=-N9=0T'8K2,7N+!SMAN#W9?^>WL1D$<@D,9>69PB*/4D\"IJY+XD6]C/X/D;4+J:TA@
MN(9ENHH!,('5P5=T/#(#]X'M0!KQ^*-`ET6/61K-@NFR8"W3SJD>3V))&&]C
MS5BZUG2[%+9[O4K.W2Z(6W:6=4$Q/0)D_-U[5\]:5J\H\,>&1-9:58VEG<$C
M6)+1VM&8V:+B5/XY/FV%L@;H^*EF^SP>'+)M9TR2&*Y\(2V&F)-"TA:\$KA=
MF5R'<>6XZ8!]J`/HZLCQ7_R)VN?]@^?_`-%M26$.JQ>&--BC>!;]+:)9C$AD!QL.-UH`ZZBBB@`HHHH`**
M**`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHH
MH`****`*&JZ1;ZM#&)6DBGA;?;W,)VRPMZJ?T(.01P01Q5.PU:XMKR/2M:")
M>/Q!/2IH5W&1B3#<#^]$<98^J8W#T(P3T
MU>8_&[P?J_BWPO:+H_[V:SG,K6N\+YH*XR,G!8?R)_$`[;P]XJT/Q7:27.AZ
ME%>1QMMDV95D/;*L`1G!QD->X4`%%%%`!1110`4444`%%%%`$5M;065I#:VT216\*+'%&@
MPJ*!@`#T`%2T44`%9'BO_D3M<_[!\_\`Z+:M>LCQ7_R)VN?]@^?_`-%M0!KT
M444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!11
M10`4444`%%%%`!1110`4444`-DC26-XY$5XW!5E89#`]01Z5SGEW7A,%H5DN
MM!7):(`O+9#_`&!U>/\`V?O+VR.%Z6B@".WN(;JWCN+>5)H9%#))&P96!Z$$
M=14E<_<:;=:+/)?Z)'YL,C&2YTW("R$\EXB>$?J2/NL>N"=U:NFZG::M:"YL
MY=Z;BC`@JR,.JLIY5AW!YH`MT444`%%%%`!1110`4444`%%%%`!371)%*NH9
M3U!&:=10!B:XKVUDC0SRJID`V[NG![]?PJEHEQ?D;WE^0_*SG':NDF@BN$
M"31JZ@YPPSS3(K.V@??%`B-C&5&*`%\RX_YX+_W\_P#K4GF76?\`CW3_`+^_
M_6J>B@"'=<_\\HO^_I_^)HW7/_/*+_OZ?_B:FHH`KA[O/,$&/^NQ_P#B:=NN
M?^>47_?T_P#Q-344`0[KG_GE%_W\/_Q-(#=]T@_[Z/\`A4]%`$.;K^[#_P!]
M'_"L7Q%YOD0>8$`W'&TGTKH*0J&Z@'ZT`B@?04
MM`!1110`4444`%%%%`!7.^-KO6[+PU+/H,4KW:RQ[_(B$LJQ;AO:-#PSAQGGN;<%ED2>UDV21NI!5E//.1W!%`'CFG?$'6[CPYX7TRPU
MVYO]3U!I/M$UO8(]U"(X$NC<^.?$6HZ9$^E:W!&UCX
M=DUFXG^PK_I4B2,AB96)V#,;`[><]#BNDT_X3Z5::+80-J&H)JMJ8Y!JEO*$
MF#K$L6%R"`FQ0H4@\`.4D'
M<&8DGDGF@#HK;7+=O#]AJUT&B2ZACDPD;.074-C"@FL;Q/XFTJ;PGK$22S
MEWL9U4&UE')0]RM=7##';P1PQ($CC4(BCH`!@"LOQ7_R)VN?]@^?_P!%M0!K
MT444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1
M110`4444`%%%%`!1110`4444`%%%%`!6-J6CS_;#JND3+;ZC@"17SY-THZ+(
M!W[!QRON,J=FB@#.TK6(M362,QO;7L&!<6DOWXB>GL5.#AAD''UK1K,U718M
M2:*YBE:UU"#_`%%W$/F3G)4C^)#CE3P?8@$48O%5M8,;7Q)-:Z5>H/O33!(9
MQ_>B9L9]U/S+WXP2`=#163:>*/#]_=);6>NZ9<7$G"10W<;NW?@`Y-:U`!11
M10`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%`!1110`4444`%%%%
M`!1110`4444`%%%4=6U>PT/3WO\`4KE8+9"%+$%B23@```DDGL`30!>HK`TO
MQIH.K^%Y/$5O>A--A0M.\JE##A0Q##KG!'3.^&-,M-.NKS5HX
MH=1B6>V)C.VA1AT94`(J>@"&UO+6^MUN+.YAN(6Z20N'4_B.*FK*NO#6C7EP;F2P
MBCNCUN;?,,W_`'\0AOUJ#^QM3MC1W:#_EII]P-Q]RDFW'X,:5?%FCJRI>7#Z=(QP$U")K?)]`S@*W_`2:
M`-NBFHZR('1@RL,AE.013J`"BBB@`HHHH`****`"BBB@`HHHH`**HWVM:5I9
MQ?ZE9VI[">=4)_`FJ7_"56$@_P!#M]0O3G`-O92E#]'*A/\`QZ@#;K"\2>,O
M#_A%;9M=U!;,7)80YB=]VW&?N@X^\.OK3O[3UR;G.>WRCH>O8`]8\/_$+PKXIU!K#
M1=66[N50R%!#(ORCJNGKYJ^`NB:MIWCR:6^TN]M8C9N`\]NZ+G(XR17
MTK0`4444`%%%%`!1110`5S/CRSBO/"TJRV&H7@CFBE`TYL7,15P1+'URR]<=
M\5TU%`'S]INB^.?$7PSM;=8[>YT6VMA+#!>HT,UR!;)L"JBG>J.6V9QN*H>1
M5N32O$MEH=HUYH%W*`,SQ#XLT/PI!#/KE^E
MG'.Q2-F1FW$#)'R@UGZ+\1_"/B+5(]-TG68[F\D#%(A%(I(`R>2H'05Y=\>_
M#$-KHNC_`-C:?.`;E]T-OO:-!M[1@[5_`"N$^#V@7TGQ*TY;JUU"UA,;3H[MQT>]9KEA^,A8UKPPQ6\2Q01)%&HPJ(H4#Z`4`8_\`PD3S
M?\>.AZO=#&=Q@%N/_(S(?TS2?:/$UP/W>GZ;9J>C3W+S,/JBJ!_X_6Y10!B?
MV7K=P3]J\1-$#VL+..(?^1/,-)_PBFG2`_;);^])ZBYO974_\`W!/_':W**`
M*5CH^F:9G^S]-L[3/7[/`L>?R`J[110`4444`%%%%`!1110`4444`%%%%`!1
M17->/(]5E\,.FC7/DW1GBRJW(MWF3>-T:2'[CL.`:`.EHKPK0]8LV^&-DU[X
MD\262V!C6>S23;%'
MU=C;2^69;D.P`EX^
MP6T$MW<6\4LDXU\^$]9$NF:8L9L9]S+J$C$#RSD@
M>2,GVR*`.LHHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HH
MHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB
M@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`
M"BBB@`HHHH`*HZOH]AKVFRZ=J=N+BUDP60L5.0<@@@@@@@'((-7J*`.)A^$_
MA!=)T^PGT^2;[$,I-]JEC=GVJI=BC#)(1?8`8&!Q6A=_#[PM?VEC:W>E">*R
M!6#S)Y&8*3N*LQ;+KGG:Q(]JZ:B@!%544*H"J!@`#``K)\5_\B=KG_8/G_\`
M1;5KUD>*_P#D3M<_[!\__HMJ`->BBB@`HHHH`****`"BBB@`HHHH`****`"B
MBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`***
M*`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH`****`"BBB@`HHHH
M`****`"BBB@`HHHH`****`"BBB@`HHHH`XCXKZEKVD^!+J[T#S5F4G[1-"@:
M2&'8Q+KZ88+D]0"2.F:Y:;QCKNHPP6NB>)X93:Z/=:K-??V>JM<&*38L+QM]
MP]F(`/IBN_\`&GA6+QAX=GTQKN>TE*L8IH6QABC+AA_$A#$%>X]#@C)NOA;H
M=S:Q1"[U2"8"99[F&YVRW2S-NE64XPP8\G`'MB@#=TSQ%:3^%=)UK4;FVL4O
MK6&;,TH10SH'V@L?K^59GBCQ1X?E\):S''KNF.[V,ZJJW<9+$QM@`9Y-=1:V
MT-E:0VMO&(X((UCC0=%51@#\A4.J6(U/2+VP:0QBZ@>$N!G;N4C./QH`I_\`
M"5^'/^@_I7_@9'_C1_PE?AS_`*#^E?\`@9'_`(UKT4`9'_"5^'/^@_I7_@9'
M_C1_PE?AS_H/Z5_X&1_XUKT4`9'_``E?AS_H/Z5_X&1_XT?\)7X<_P"@_I7_
M`(&1_P"-:]%`&1_PE?AS_H/Z5_X&1_XT?\)7X<_Z#^E?^!D?^-:]%`&1_P`)
M7X<_Z#^E?^!D?^-'_"5^'/\`H/Z5_P"!D?\`C6O10!C/XN\-1KN;Q!I0'_7Y
M'_C3O^$K\.?]!_2O_`R/_&K>J6`U.P:U,AC#.C;@,_=<-_2KE`&1_P`)7X<_
MZ#^E?^!D?^-'_"5^'/\`H/Z5_P"!D?\`C6O10!D?\)7X<_Z#^E?^!D?^-'_"
M5^'/^@_I7_@9'_C6O10!D?\`"5^'/^@_I7_@9'_C1_PE?AS_`*#^E?\`@9'_
M`(UKT4`9'_"5^'/^@_I7_@9'_C1_PE?AS_H/Z5_X&1_XUKT4`9'_``E?AS_H
M/Z5_X&1_XTA\6>&QU\0:4/\`M]C_`,:V*IZE8_VC:I!YGE[;B&?.W.?+E63'
MX[<>V:`*G_"5^'/^@_I7_@9'_C1_PE?AS_H/Z5_X&1_XUKT4`9'_``E?AS_H
M/Z5_X&1_XT?\)7X<_P"@_I7_`(&1_P"-:]%`&1_PE?AS_H/Z5_X&1_XT?\)7
MX<_Z#^E?^!D?^-:]%`&1_P`)7X<_Z#^E?^!D?^-'_"5^'/\`H/Z5_P"!D?\`
MC6O10!D?\)7X<_Z#^E?^!D?^-'_"5^'/^@_I7_@9'_C6O10!CGQ9X;&,^(-*
M&>!_IL?^-+_PE?AS_H/Z5_X&1_XU:U"P^W263>;L^S7(GQMSNPK#'7C[W7VJ
M[0!D?\)7X<_Z#^E?^!D?^-'_``E?AS_H/Z5_X&1_XUKT4`9'_"5^'/\`H/Z5
M_P"!D?\`C1_PE?AS_H/Z5_X&1_XUKT4`9'_"5^'/^@_I7_@9'_C1_P`)7X<_
MZ#^E?^!D?^-:]%`&1_PE?AS_`*#^E?\`@9'_`(T?\)7X<_Z#^E?^!D?^-:]%
M`&1_PE?AS_H/Z5_X&1_XTA\6>&P1GQ!I7/3_`$V/_&MBJ=Y8_:[K3Y_,V?8[
M@SXVYWYBDCQ[?ZS/X>]`%3_A*_#G_0?TK_P,C_QH_P"$K\.?]!_2O_`R/_&M
M>B@#(_X2OPY_T']*_P#`R/\`QH_X2OPY_P!!_2O_``,C_P`:UZ*`,C_A*_#G
M_0?TK_P,C_QH_P"$K\.?]!_2O_`R/_&M>B@#(_X2OPY_T']*_P#`R/\`QH_X
M2OPY_P!!_2O_``,C_P`:UZ*`,C_A*_#G_0?TK_P,C_QH_P"$K\.?]!_2O_`R
M/_&M>B@#'_X2SPV"!_PD&E9/0?;8_P#&E_X2OPY_T']*_P#`R/\`QJU<6'GZ
MK97WF[?LR2+LVYW;]O?/&-OZU=H`R/\`A*_#G_0?TK_P,C_QH_X2OPY_T']*
M_P#`R/\`QK7HH`R/^$K\.?\`0?TK_P`#(_\`&C_A*_#G_0?TK_P,C_QK7HH`
MR/\`A*_#G_0?TK_P,C_QH_X2OPY_T']*_P#`R/\`QK7HH`R/^$K\.?\`0?TK
M_P`#(_\`&C_A*_#G_0?TK_P,C_QK7HH`R/\`A*_#G_0?TK_P,C_QJQ9:WI.I
M3&&PU2RNI57<4@N$=@.F<`].1^=7ZIR6/F:Q;:AYF/(MYH/+V_>WM&V<^WE_
MK[4`7****`"BBB@`HHHH`****`"BBB@`K$\37>N6ME$=#BL`YYOV(AMX@
MI)9@""W0#@\=36W7+>.O"E[XPTF'3;;61IT`F$EPIMO.%PHZ(PWK\N>H[\4`
MU=L[%CW?NR```03TSBH[OX66\MWY=IJTUMI$Z6B7MB8%4`%%%%`!
M1110`4444`8GB:[URULHCH<5@'+DSW-^Q$-O$%)+,`06Z`<'CJ:X1/B7X@U+
M1]-ETS3=/CO7TFXU>[6Z,FPPQ2;,1XP%+WQAI,.FVVLC3H
M!,)+A3;><+A1T1AO7Y<]1WXK+U/X>ZAJ4%G)_P`)$MMJ*6,NFW5Q;Z>BI/:N
MV=BQ[OW9```()Z9Q0!DZE\4=2"3ZGIEA9'2-.L;&]OUN&?SG6YY58R.`57DD
M@YJQ9_$#4[[Q_=:/]JTFTL(=1-E$MQ:3F2XV@;PLH;RP^=P`//'0U:U+X66]
MW*8+/5IK/2KBUM;2_LQ`KFYCM_\`5XDJ#Y5\T'_`%8/.W;GWH`ZZBBB@`HHHH`****`"L?Q%<:Y!8Q#
M0+:TENI)0KRWCD101X.7(!!;''`(Z^U;%9PZD`]\'GIZT`!\4/$6I6[0Z;8Z2UW:6UW>W,[F0P7,$$@3=!@Y&
M\YP22!CO5K4OBCJ02?4],L+(Z1IUC8WM^MPS^QQ7JE6\W&&RCX)R.!Q6C?\`BCQ=_;>@1::VAR6NN.)+>&2WE,T5N$#N
M[MY@&0"!P.20*6Z^%$0TZSL])UJ>P5-,;2;MC`LIN;9F+,.<;&)+?-S]X\5T
M=MX4BM?%=IK,=Q^XL]*&FV]J8_N?.&+[L]2%5<8[=><4`=%1110`4444`%%%
M%`!63XAGUF#3E_L*VM9;MY50O=OB*%/XI&`(+`8Z`YYK6KG/&_AN]\6>'7TB
MSU@Z6LSCSY%A,ADCYS'PRD`G&>>@QWH`Y*R^(7B'5[+2;+3K32CJ^H7=Y#'=
M2>8;22.V`S(@!W$-D`<\<]:@E^*6L:AI-K>:+I]@&CT1]:OENVAT`%%%%`!1110`4444`9/B&?68-.7^PK:U
MENWE5"]V^(H4_BD8`@L!CH#GFN%LOB%XAU>RTFRTZTTHZOJ%W>0QW4GF&TDC
MM@,R(`=Q#9`'/'/6NM\;^&[WQ9X=?2+/6#I:S.//D6$R&2/G,?#*0"<9YZ#'
M>L9O`&I?V;I"P^(8;75-(:5;.ZM]-5(TAD0*T9BWD'@9SNZT`8DOQ2UC4-)M
M;S1=/L`T>B/K5\MVSD>6CLC1Q[<8;*/@G(X'%1W?Q9U*.VOM>BM]+CT*PNX;
M>:UG=Q>RJX0F1.<8^?(D*>>*UKKX41#3K.STG6I[!4TQM)NV,"RFYMF8LP
MYQL8DM\W/WCQ1JWPH@UC4E-QJ]E8A4VW]GQ>=Y<87$8G&&V':,@@_6@#T6
MBBB@`HHHH`****`"BBB@`HHHH`*S=6U"YL6L8K2UBN)[NX,"K+,8E7$;R$DA
M6/1".G>M*LC6?^0IX?\`^P@__I-/0`?:?$?_`$"M*_\`!E)_\8H^T^(_^@5I
M7_@RD_\`C%:]%`&1]I\1_P#0*TK_`,&4G_QBC[3XC_Z!6E?^#*3_`.,5:U35
M].T2R-YJE[!9VP8+YL[A5R>@R>]<3XN^+.@:3X6OK[0]9TJ_U*)5\BV,V[>2
MP!X4@G`)/X4`=9]I\1_]`K2O_!E)_P#&*/M/B/\`Z!6E?^#*3_XQ7A>@_M#:
MY?>(-/M=3LM'MK":X2.XG"R+Y:$@,V2Y`P.>:]D7XC^"V8*OBC2B2<#_`$E?
M\:`-#[3XC_Z!6E?^#*3_`.,4?:?$?_0*TK_P92?_`!BM>N&\3_$%_#_BR+08
M[/3GDDM([E9;[4OLH8L[H$4>6V3\F?QH`Z+[3XC_`.@5I7_@RD_^,4?:?$?_
M`$"M*_\`!E)_\8K$C^(=J;L6;:9>374E]>6D,5F!*6%NZJ[G=MV\,#CGH0"3
MC.>_Q=T5]#O=3M+.]E2V:$`%`0_F2>6#E"Q0@Y)5PK=..10!U?VGQ'_T"M*_
M\&4G_P`8H^T^(_\`H%:5_P"#*3_XQ6=XC\9VGAV_T#[7)!!I^I22++A)P,'UK)T[XGVD_A^QOYK&YN;FZ6ZF\C3D$NR"&9HS*`
M:`.G^T^(_P#H%:5_X,I/_C%'VGQ'_P!`K2O_``92?_&*YW4?B=IUO'X>V_LXQ()U=8Q+@Y?;@H<@[L>].USQPEM\-_^$NT:
MV^V+(L#002_(7\R5$P?0C@#(^T^(_^@5I7
M_@RD_P#C%'VGQ'_T"M*_\&4G_P`8K7HH`R/M/B/_`*!6E?\`@RD_^,4?:?$?
M_0*TK_P92?\`QBM>B@#(^T^(_P#H%:5_X,I/_C%'VGQ'_P!`K2O_``92?_&*
MKZCXW\+Z3?26.H:_I]M=18WPRSJK+D9&1VX(->6_$'X]?V/JD=AX3%A?HJ!Y
MKR0M(FX_PJ%(Z#&3D]<8XH`]:^T^(_\`H%:5_P"#*3_XQ1]I\1_]`K2O_!E)
M_P#&*X?P-\:-#\0:&9M?O+#2-1BDV/$\VU9!@$.N[MU&,G&/>NYT?Q/H7B!Y
M4TC5K.^>$`R+!*'*@]"2@!/M/B/_H%:5_X,I/_`(Q1]I\1_P#0*TK_`,&4
MG_QBJ7C?7=2\/:''>:;:"=S<)'-(T+S+;Q'.Z4QH0S`8`P".N>U62O/'36_@'3_$T.D3R27OD^79N6#`N>A>/?[9UR"R;2VM[.]^U?V?=>>',_V>0)
M)N3`*W4$$=FJL7C@CB=V8NR@'$O3/...>"SQ!\3K2PT.ZO=)L
M;F_>'3HM0+[`(HDE_P!6)#G<"PSP`<=3@74"6M^ZP&=(YDB#)#_`*U(\-N++SU`S@[<
MXK3\/^)=-\3VTUUI4CSVL;A!/L(20X!.TGKC.#[Y':@`^T^(_P#H%:5_X,I/
M_C%'VGQ'_P!`K2O_``92?_&*UZ*`,C[3XC_Z!6E?^#*3_P",4?:?$?\`T"M*
M_P#!E)_\8K7HH`R/M/B/_H%:5_X,I/\`XQ1]I\1_]`K2O_!E)_\`&*UZ9)-%
M%CS)$3/3%U-F/0!P34M`&1]I\1_]`K2O_!E)_\`&*/M
M/B/_`*!6E?\`@RD_^,5S=_X]U+2/$%[8ZEH=G!9V5H+^>[&I%B+6X\HP00.%9AN0%B<\
M*54^N*`.R^T^(_\`H%:5_P"#*3_XQ1]I\1_]`K2O_!E)_P#&*S/%GC1/#FBZ
M5J4$%M/'J-U'`C7=W]ECC#QNX=G*M@?+CIWK,3XI6$/A6+7;[3KA8WEGC(M9
M$ECQ$2&=9&**RG'RCAF[*:`.F^T^(_\`H%:5_P"#*3_XQ1]I\1_]`K2O_!E)
M_P#&*R6^(>DC5DL5MKYU-Q;6S7(C7RDDG17B!RV[D,!P#@]<<5FZ'\5-,O\`
MP<^NW<4F;:".2\%LN8XI'8*L89B!NY!.3A0DIJ-I'-'$SLFV4+G*D@X*DJPXX920>
MQK4H`R/M/B/_`*!6E?\`@RD_^,5#<:KK5B(9;O2]/$#W$,#-%?N[+YDBQ@@&
M$`X+`]16[61XE_Y!\`V$++_P!*8J`->BBB@`HHHH`****`"LC6?^0IX?\`
M^P@__I-/6O5#4],&I"U(N[BUEMIO.CE@V%@VQD/#JP(P[=J`+]%9']C7W_0R
MZK_W[M?_`(S1_8U]_P!#+JO_`'[M?_C-`&K)''*A21%=3U5AD5S_`(M\(67B
MGPO>Z+^[L_M04>?'""4PP;IQZ8Z]ZM_V-??]#+JO_?NU_P#C-']C7W_0RZK_
M`-^[7_XS0!Y;H/[/=KHNOZ?JA\0R7`L[A)_):S`#[2#@G>>N/2O81868((M(
M`1T(C%4/[&OO^AEU7_OW:_\`QFC^QK[_`*&75?\`OW:__&:`->LU=$ME\32:
M^'E^U26:613(V;%=G!QC.^,8XJ+^QK[_H9=5_[]VO_P`9H_L:^_Z&75?^
M_=K_`/&:`*-CX(TVPUF'5(I[LSQ7%Y>.^:RY?A9HT
MYO7GOM1DN+J-8C<$PB1%659A\PC&\[T7E]QP,9KHO[&OO^AEU7_OW:__`!FC
M^QK[_H9=5_[]VO\`\9H`?=Z#;WVIZ/J$\\[7&E-(\1!4"0O&8V+C'HQ/&.?R
MK`;X:Z3]@MK:"^U.V>!+B+[1!,JR213R&22-CMP5W'C`!&.N>:W/[&OO^AEU
M7_OW:_\`QFC^QK[_`*&75?\`OW:__&:`,M_A[HK6.I64;W4-O?O:,Z1NH$0M
MA&(U3*G`Q$N?6'GU75IX]6D,MS%))%C>""A5A&'&P@;1NP
M,=*WO[&OO^AEU7_OW:__`!FC^QK[_H9=5_[]VO\`\9H`S-/\!:;8:K::J;R_
MN=0@N9+EKFXD5GG=X?)^?"@8"=`N,5*O@C35\$V_A03W?V"#RMLF]?-/ER+(
M,G;CJHSQTJ]_8U]_T,NJ_P#?NU_^,T?V-??]#+JO_?NU_P#C-`'/WGPL\/W5
M_J-XCW=O+?7<-ZXB,91)8PX!561ASYKD@YY.1BBY^%NB7&FP6"W>HP6\6GR:
M;B.1"6A=P^"60\AE&",=.Z>XOO)EGENA9^:/(2>1"KRJI7.XAF/)(!).*BN?AKHMU
MIXLY;B]\L:7;:4#O3/E0/O1N5P6W=6T]VTMF]S(@=DVLT^SS"0%'=`0!@#)
M[8`=J'@>PO\`4[B\%]J-K'=2)+=VEM.$AN77`!<;=P.%4':5SCG-:']C7W_0
MRZK_`-^[7_XS1_8U]_T,NJ_]^[7_`.,T`8>H_#/1=3FO3/>8VBS+Y
M,ASC&.M=#_`&-??]#+JO\`W[M?_C-']C7W_0RZK_W[M?\`XS0!H65G!IUA
M;V-K&([>VB6&)!_"B@`#\@*GK(_L:^_Z&75?^_=K_P#&:/[&OO\`H9=5_P"_
M=K_\9H`UZ*R/[&OO^AEU7_OW:_\`QFC^QK[_`*&75?\`OW:__&:`->BLC^QK
M[_H9=5_[]VO_`,9H_L:^_P"AEU7_`+]VO_QF@#1DM+:5R\EO$['JS(":\P^(
MGP5L_&>J)JNGWZZ;>>6L1NCEP>&X((...^<#IUKOO[&OO^AEU7_OW:_\`
MQFC^QK[_`*&75?\`OW:__&:`,3P'\.=+\#:&]BC+?7$LGF37,L0![KL4#/Y5F?V-??]#+JO_?NU_P#C-']C7W_0RZK_`-^[
M7_XS0!)KFB1:[9Q027=W:/#,L\4]I+LD1QD`C(((P3P01[5STWPSTF:U5/M^
MIK=>;/+)>B2,RS&9524."A0AE11C:/NC&*W?[&OO^AEU7_OW:_\`QFC^QK[_
M`*&75?\`OW:__&:`,G1OAWHVB?V2L$MU+%I0N5MHIV5E"SE2P/RY."HQSW.<
MUNZQI7]KV:P"_OK!TD$B3V4WEN".QR"K#GD,"/;(%0?V-??]#+JO_?NU_P#C
M-']C7W_0RZK_`-^[7_XS0!@R_"_09;:VMEEOHX8H/L\RI,/]+C,IE*RY4YR[
M,W&/O$=#BK^D>!M+T;6O[2MYKR0IYWV:VED!AM?.)Y:@`C<1W)J_\`V-??
M]#+JO_?NU_\`C-']C7W_`$,NJ_\`?NU_^,T`9?\`PK_2O[6N-2^T7OG3R7U*^^%NC7NG)8K?ZK;0G3X=/G%O,B_:8XAB,R9
M0Y8>HQGH01Q70_V-??\`0RZK_P!^[7_XS1_8U]_T,NJ_]^[7_P",T`8Z_#K2
M(=5O-1M+BZM9[GSBK0+$#`\OWW1C&6R><9)`R<`5J>&O"]CX3LI;+39;G[&[
M^8D$T@=83@!MAQG!/S')/)/3-2?V-??]#+JO_?NU_P#C-']C7W_0RZK_`-^[
M7_XS0!KT5D?V-??]#+JO_?NU_P#C-']C7W_0RZK_`-^[7_XS0!KT5D?V-??]
M#+JO_?NU_P#C-']C7W_0RZK_`-^[7_XS0!KTQXHY<>9&CXZ;E!Q67_8U]_T,
MNJ_]^[7_`.,T?V-??]#+JO\`W[M?_C-`$]_I<5W`L<:QQ$-G<$'3!XJM9:$M
MK4'9P1QD-ESSGL.*Y[4_AJ9?L+V6KWK7BZG!=W=
M_=3@W!CBBD1%0A-N5W\`K@Y;.<\]3_8U]_T,NJ_]^[7_`.,T?V-??]#+JO\`
MW[M?_C-`$5KX6M+'PHGAZSNKZV@13MN(9]LX8OO+[P.I8DGC!R1C!Q6%+\+-
M&FBD#:AJPN+CSA>72SJ)+M)=OF))\N-IV+PH7&.*Z+^QK[_H9=5_[]VO_P`9
MH_L:^_Z&75?^_=K_`/&:`(/$'A2S\0:?86;7-S9+87"7%N]IL!5E1D`PZL,8
M<\8]*P9_A+H-S9I!/=ZA(PFN)I)6:(M*9E59,C9M&0B\J%(YP1DUTO\`8U]_
MT,NJ_P#?NU_^,T?V-??]#+JO_?NU_P#C-`&6/A_I0F:3[1>[FO+.\/SK]^V1
M5C'W>A"#/KS@BJVE_#/1]$TV6QTR\U&UBFM4MY3$\8,A5BPD;Y,%^2I.,%3@
M@UN_V-??]#+JO_?NU_\`C-']C7W_`$,NJ_\`?NU_^,T`-\->&;'PM83VEB9&
M$]PUS*[JBEI&`!.U%55X4<*H%;-9']C7W_0RZK_W[M?_`(S1_8U]_P!#+JO_
M`'[M?_C-`&O61XE_Y!
GRAPHIC
8
kpmgllpsig.jpg
GRAPHIC
begin 644 kpmgllpsig.jpg
M_]C_X``02D9)1@`!`0$`9`!D``#_VP!#``@&!@<&!0@'!P<)"0@*#!0-#`L+
M#!D2$P\4'1H?'AT:'!P@)"XG("(L(QP<*#7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7&
MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$!
M`0$!`0````````$"`P0%!@<("0H+_\0`M1$``@$"!`0#!`<%!`0``0)W``$"
M`Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF
M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$
MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4
MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H`#`,!``(1`Q$`/P#UO1/&NG:]
MXIUK0+2*X\_22JS2NH",Q)!`YSP1WZ]JO>(/$NC^%M.-]K-]%:P:]8MOCKX!G_P!9JD]O_P!=;20_^@@UZ)LA
M@#2!$0*O)"XX%?.'@;XA>&+/Q;XOU[Q+>R2MJ$P%K&UL9-\0+8XQ@878!DCC
M-`'OVB>)=$\1PM+HVJ6MZJC+"&0%D_WEZC\16K7@%E"?%7Q#T_Q?X?\`#DOA
M_P`/Z:IN+N^EC$!NU'S'"J<-D#'&1UR>@KBM0^(?CGQ-X(=)F\13>'X[V-]5@@%Q+;`$E(R0,DXQ_
M$O&<\@UR_C'Q]#HIAT#0F34_$]VWV>WMD<,86Q_K)=`ZX/7V&2.)^#Y;3K
M?QEXV\27XGGCN&MY[HG.1&-SE>!D'<@`&.@`%`'N-%>.6_C?XB>/U\_P7HUK
MI>DEMBW^HL"SD8R0.>!ST5NG7/%=5X1TCXBV.IB3Q1XET[4+'8M:E=W$\FH:A-+&LLI<1(
M,*%7/0`@\4`>C45Y=*/%+7,3(L$F3P>U`'NM%>):HE]X,\
M(0Z]#\2=174!:K,]AJ0",'!Z9Q0!P7PO\"6DWPJM]-\3Z-&[S3S2-#
M&_&$IMM.NWCOU4L]E=1F.9,=>.AQ[$U7^'?@2/P5I5U!.;>XNY[V6?ST3D(2
M`HR1D?*`2.Q)ZUTXT?3!JAU0:=:#4"-INQ`OFXQC&_&<8`'6KM`&'XSL;W5/
M!6M6&FIOO+FSEAB3>%W%E(QD\#KWKEO!_P`-;2V^$Z>%M.4Z9%)+=S9$MY!;AV@FBU2=`Q&2J/M:&0^H.,]>@KUVN&N8([;XUV$T`
M,;WFC3?:=K$"7RY$V%AT)&XX/7F@#@M"\5>,/A/:KH?BCP[/J&B6F5AU"P7=
ML3.>O0CGHVTBN9UKQCX;\1ZK=7\_CSQ7:0S.6BLX[?:L"G^'Y7P1_GFOIRH&
ML;1Y1*UK`T@;<',8)!]<^M`'A?P3\+VNL75YX@N)]:E-E>`65S/,T:SIC^)!
MG)'&1N(YQ7O=%%`&?KJW#^'M36TB::Y-I*(HU;:7?8=H![$G%>6>`_$'B+PU
MX-TS08?A]KDTUNC`O*5A1G9V<\MT'S=37L=%`'C5B?'F@>/O$NL0>!Y-1;6/
M(\ICJ,4:PA$Q@DYW=0.WW?>K7CS1_$WC?P/IUKJOAY;2_.L0_N+>X\_RX2"K
M.Q7``&XY[`
EX-21
9
c60287_ex21.htm
Exhibit 21
SUBSIDIARIES
The
following are lists of consolidated subsidiaries of First Horizon National
Corporation (FHNC) and of First Tennessee Bank National Association
(FTBNA), and information concerning certain unconsolidated entities, all at
December 31, 2009. Each consolidated entity is 100% owned by its immediate
parent, except as described below in note (1) to the FHNC table and notes (1)
and (2) to the FTBNA table, and all are included in the Consolidated Financial
Statements. Consolidated entities not listed include certain trusts not
controlled by FHNC (FHNC owns non-voting preferred interests but no voting
interests) which are not significant subsidiaries of FHNC.
Direct Consolidated Entities of FHNC:
|
|
|
|
|
Entity
|
|
Type of
Ownership
by FHNC
|
|
Jurisdiction of
Incorporation/
Organization
|
|
|
|
|
|
First
Tennessee Bank National Association (1)
|
|
Direct
|
|
United
States
|
Hickory
Capital Corporation
|
|
Direct
|
|
Tennessee
|
Highland
Capital Management Corp.
|
|
Direct
|
|
Tennessee
|
Martin &
Company, Inc.
|
|
Direct
|
|
Tennessee
|
Mountain
Financial Company*
|
|
Direct
|
|
Tennessee
|
|
|
|
|
*
|
|
Inactive at December 31,
2009.
|
|
|
|
(1)
|
|
At December 31, 2009,
300,000 shares of non-voting preferred stock issued by this subsidiary are
outstanding and are not owned by FHNC. That preferred stock has an aggregate
liquidation preference amount of $300,000,000 and is not participating with
the common stock in the event of liquidation. At December 31, 2009, divisions
of this subsidiary did business in certain jurisdictions under the following
names: First Express, First Horizon, First Horizon Bank, First Horizon Home
Loans, First Horizon Equity Lending, First Tennessee Home Loans, and FTN
Financial Capital Markets.
|
Consolidated Subsidiaries of FTBNA:
|
|
|
|
|
Subsidiary of FTBNA
|
|
Type of
Ownership
by FTBNA
|
|
Jurisdiction of
Incorporation/
Organization
|
|
|
|
|
|
Check
Consultants, Incorporated*
|
|
Direct
|
|
Tennessee
|
Community
Money Center, Inc.*
|
|
Direct
|
|
Tennessee
|
First
Express Remittance Processing, Inc.
|
|
Direct
|
|
Tennessee
|
First
Horizon ABS Trust 2006 HE1 (1)
|
|
Direct
|
|
Delaware
|
First
Horizon ABS Trust 2006 HE2 (1)
|
|
Direct
|
|
Delaware
|
First
Horizon ABS Trust 2007 HE1 (1)
|
|
Direct
|
|
Delaware
|
First
Horizon Mint Distribution, Inc.
|
|
Direct
|
|
Tennessee
|
First Horizon
Money Center, Inc.*
|
|
Direct
|
|
Tennessee
|
First
Horizon Msaver, Inc.
|
|
Direct
|
|
Tennessee
|
Hickory
Venture Capital Corporation
|
|
Direct
|
|
Alabama
|
JPO, Inc.
|
|
Direct
|
|
Tennessee
|
FT
Reinsurance Company
|
|
Direct
|
|
South
Carolina
|
First
Horizon Asset Securities, Inc.
|
|
Direct
|
|
Delaware
|
1
|
|
|
|
|
|
FTRE
Holding, LLC
|
|
|
Direct
|
|
Delaware
|
FTRE Holding II, LLC
|
|
|
Indirect
|
|
Delaware
|
First Horizon Preferred Funding II, Inc.
|
|
|
Indirect
|
|
Delaware
|
FT Real Estate Securities Company, Inc.
|
|
|
Indirect
|
|
Arkansas
|
First Horizon Preferred Funding, Inc.
|
|
|
Indirect
|
|
Delaware
|
FHTRS, Inc. (2)
|
|
|
Indirect
|
|
Delaware
|
FH-FF Mortgage Services LLC (2)
|
|
|
Indirect
|
|
Delaware
|
First
Tennessee Advisory Services, Inc.
|
|
|
Direct
|
|
Tennessee
|
First
Tennessee ABS, Inc.*
|
|
|
Direct
|
|
Delaware
|
First Tennessee
Brokerage, Inc.
|
|
|
Direct
|
|
Tennessee
|
First
Tennessee Equipment Finance Corporation
|
|
|
Direct
|
|
Tennessee
|
First
Tennessee Housing Corporation
|
|
|
Direct
|
|
Tennessee
|
CC Community Development Holdings, Inc.
|
|
|
Indirect
|
|
Tennessee
|
First
Tennessee Merchant Equipment, Inc.*
|
|
|
Direct
|
|
Tennessee
|
FT Building,
LLC
|
|
|
Direct
|
|
Tennessee
|
FTN
Financial Capital Assets Corporation
|
|
|
Direct
|
|
Tennessee
|
FTN
Financial Securities Corp.
|
|
|
Direct
|
|
Tennessee
|
FTN
Financial Securitization Corporation
|
|
|
Direct
|
|
Delaware
|
FTN
Financial Investment Corp.
|
|
|
Direct
|
|
Delaware
|
FTN Financial Asia Limited
|
|
|
Indirect
|
|
Hong Kong
|
FTN Equity
Capital Markets Corp. (3)
|
|
|
Direct
|
|
Delaware
|
FTN Premium
Services, Inc.
|
|
|
Direct
|
|
Tennessee
|
First
Tennessee Insurance Services, Inc.
|
|
|
Direct
|
|
Tennessee
|
First
Horizon Insurance Services, Inc.
|
|
|
Direct
|
|
Tennessee
|
First
Horizon Insurance, Inc.
|
|
|
Direct
|
|
Delaware
|
First Horizon Insurance Group, Inc. (4)
|
|
|
Indirect
|
|
Tennessee
|
First Horizon Insurance Agency, Inc.*
|
|
|
Indirect
|
|
Georgia
|
SFSR, Inc.
|
|
|
Indirect
|
|
Tennessee
|
|
|
|
|
*
|
|
Inactive at December 31,
2009.
|
|
|
|
(1)
|
|
The following consolidated
subsidiaries are not wholly-owned directly or indirectly by FHNC:
|
|
|
|
|
|
First Horizon ABS Trust 2006
HE1, First Horizon ABS Trust 2006 HE2, and First Horizon ABS Trust 2007
HE1 are trusts to which FTBNA transferred certain assets. Those trusts issued
debt securities secured by those assets. FTBNA retains certain rights as
transferor.
|
|
|
|
(2)
|
|
The following subsidiaries
are not wholly-owned by their immediate parent but are 100% owned by FHNC or
its direct or indirect subsidiaries:
|
|
|
|
|
|
FHTRS, Inc.
|
|
|
FH-FF Mortgage Services LLC
|
|
|
|
(3)
|
|
Formerly known as FTN
Midwest Securities Corp.
|
|
|
|
(4)
|
|
This subsidiary did business
in certain jurisdictions under the following names: First Horizon Insurance
Agency of Tennessee and Tennessee First Horizon Insurance Agency.
|
2
Selected Unconsolidated Entities:
FHNC owns 100%
of the common securities of the following unconsolidated entities:
|
|
|
First Tennessee
Capital I, a Delaware business trust
|
|
|
|
First
Tennessee Capital II, a Delaware business trust
|
3
EX-23
10
c60287_ex23.htm
c60287_ex23.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing
Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
First Horizon National Corporation:
We consent to the incorporation by reference into the previously
filed registration statements Nos. 33-9846, 33-40398, 33-44142, 33-52561, 33-57241,
33-64471, 333-16225, 333-16227, 333-17457, 333-17457-01, 333-17457-02, 333-17457-03,
333-17457-04, 333-70075, 333-91137, 333-92145, 333-92147, 333-56052, 333-73440,
333-73442, 333-106015, 333-108738, 333-108750, 333-109862, 333-110845, 333-123404,
333-124297, 333-124299, 333-133635, 333-147409, 333-150448 , and 333-156614 of
First Horizon National Corporation (the Company) of our reports dated February
26, 2010, with respect to the Companys consolidated statements of condition as of December 31, 2009 and 2008, and the related consolidated statements
of income, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 2009, and the effectiveness of internal control over financial reporting as of December 31, 2009, which reports are incorporated
by reference into the Companys 2009 Annual Report on Form 10-K.
/s/ KPMG LLP
Memphis, Tennessee
February 26, 2010
EX-24
11
c60287_ex24.htm
EXHIBIT 24
POWER OF ATTORNEY
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below does
hereby constitute and appoint WILLIAM C. LOSCH III, JAMES F. KEEN, CLYDE A.
BILLINGS, JR., and THOMAS C. ADAMS, JR., jointly and each of them severally,
his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to execute and sign the Annual Report on
Form 10-K for the fiscal year ended December 31, 2009 to be filed with the
Securities and Exchange Commission, pursuant to the provisions of the
Securities Exchange Act of 1934, by First Horizon National Corporation
(Corporation) and, further, to execute and sign any and all amendments
thereto and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, or their or his or
her substitute or substitutes, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all the acts that said
attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ D. Bryan Jordan
|
|
President and Chief Executive Officer
|
|
February 26, 2010
|
|
|
|
and Director (principal executive
|
|
|
|
D. Bryan Jordan
|
|
officer)
|
|
|
|
|
|
|
|
|
|
/s/ William C. Losch III
|
|
Executive Vice President and Chief
|
|
February 26, 2010
|
|
|
|
Financial Officer (principal financial
|
|
|
|
William C. Losch III
|
|
officer)
|
|
|
|
|
|
|
|
|
|
/s/ James F. Keen
|
|
Executive Vice President and Chief
|
|
February 26, 2010
|
|
|
|
Accounting Officer (principal
|
|
|
|
James F. Keen
|
|
accounting officer)
|
|
|
|
|
|
|
|
|
|
/s/ Michael D. Rose
|
|
Chairman of the Board and Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Michael D. Rose
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert B. Carter
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Robert B. Carter
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Simon F. Cooper
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Simon F. Cooper
|
|
|
|
|
1 of 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Mark A. Emkes
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Mark A. Emkes
|
|
|
|
|
|
|
|
|
|
|
|
/s/ James A. Haslam, III
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
James A. Haslam, III
|
|
|
|
|
|
|
|
|
|
|
|
/s/ R. Brad Martin
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
R. Brad Martin
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Vicki R. Palmer
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Vicki R. Palmer
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Colin V. Reed
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Colin V. Reed
|
|
|
|
|
|
|
|
|
|
|
|
/s/ William B. Sansom
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
William B. Sansom
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Luke Yancy III
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Luke Yancy III
|
|
|
|
|
2
EX-31.(A)
12
c60287_ex31-a.htm
c60287_ex31-a.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing
Exhibit 31(a)
FIRST HORIZON NATIONAL CORPORATION
RULE 13a 14(a) CERTIFICATIONS OF CEO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)
CERTIFICATIONS
I, D. Bryan Jordan, President and Chief Executive Officer of First Horizon National Corporation, certify that:
1. |
I have reviewed this annual report on Form 10-K of First Horizon National Corporation;
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
|
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
|
|
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
|
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
Date: February 26, 2010
/s/ D. Bryan Jordan
D. Bryan Jordan
President and Chief Executive Officer
EX-31.(B)
13
c60287_ex31-b.htm
c60287_ex31-b.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing
Exhibit 31(b)
FIRST HORIZON NATIONAL CORPORATION
RULE 13a 14(a) CERTIFICATIONS OF CFO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)
CERTIFICATIONS
I, William C. Losch III, Executive Vice President and Chief Financial Officer of First Horizon National Corporation, certify that:
1. |
I have reviewed this annual report on Form 10-K of First Horizon National Corporation;
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
|
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
|
|
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
|
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
Date: February 26, 2010
/s/ William C. Losch III
William C. Losch III
Executive Vice President and Chief Financial Officer
EX-32.(A)
14
c60287_ex32-a.htm
c60287_ex32-a.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing
Exhibit 32(a)
CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CEO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codified at 18 U.S.C. Section 1350
I, the undersigned D. Bryan Jordan, President and Chief Executive Officer of First Horizon National Corporation (Corporation), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, as follows:
1. |
The Corporations Annual Report on Form 10-K for the year ended December 31, 2009, (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934.
|
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
|
|
Dated: February 26, 2010
/s/ D. Bryan Jordan
D. Bryan Jordan
President and Chief Executive Officer
EX-32.(B)
15
c60287_ex32-b.htm
c60287_ex32-b.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing
Exhibit 32(b)
CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codified at 18 U.S.C. Section 1350
I, the undersigned William C. Losch III, Executive Vice President and Chief Financial Officer of First Horizon National Corporation (Corporation), hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:
1. |
The Corporations Annual Report on Form 10-K for the year ended December 31, 2009, (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934.
|
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
|
|
Dated: February 26, 2010
/s/ William C. Losch III
William C. Losch III
Executive Vice President and Chief Financial Officer
EX-99.1
16
c60287_ex99-1.htm
EXHIBIT 99.1
FIRST HORIZON NATIONAL CORPORATION
PRINCIPAL EXECUTIVE OFFICERS CERTIFICATE
Provided Pursuant to 31 CFR 30.15
This
Certificate is provided pursuant to 31 CFR 30.15 in relation to the
participation of First Horizon National Corporation (the Company) in the
Capital Purchase Program (CPP) of the U.S. Department of the Treasury (the
Treasury) pursuant to the Letter Agreement of the Company with the Treasury
dated as of November 14, 2008. Under the CPP, the Treasury purchased 866,540
shares of the Companys Preferred Stock, Series CPP, along with a common stock
warrant (collectively, the Securities). This Certificate is provided to the
Company for inclusion as an exhibit to the Companys Annual Report on Form 10-K
for the year ended December 31, 2009.
* * * * *
I, D. Bryan
Jordan, certify, based on my knowledge, that:
(i) The
compensation committee of the Company has discussed, reviewed, and evaluated
with senior risk officers at least every six months during the period beginning
on the later of September 14, 2009, or ninety days after the closing date of
the agreement between the TARP recipient and Treasury and ending with the last
day of the TARP recipients fiscal year containing that date (the applicable
period), the senior executive officer (SEO) compensation plans and the
employee compensation plans and the risks these plans pose to the Company;
(ii) The
compensation committee of the Company has identified and limited during the
applicable period any features of the SEO compensation plans that could lead
SEOs to take unnecessary and excessive risks that could threaten the value of
the Company, and during that same applicable period has identified any features
of the employee compensation plans that pose risks to the Company and has
limited those features to ensure that the Company is not unnecessarily exposed
to risks;
(iii) The
compensation committee has reviewed, at least every six months during the
applicable period, the terms of each employee compensation plan and identified
any features of the plan that could encourage the manipulation of reported
earnings of the Company to enhance the compensation of an employee, and has
limited any such features;
(iv) The
compensation committee of the Company will certify to the reviews of the SEO
compensation plans and employee compensation plans required under (i) and (iii)
above;
(v) The
compensation committee of the Company will provide a narrative description of
how it limited during any part of the most recently completed fiscal year that
included a TARP period the features in
(A) SEO
compensation plans that could lead SEOs to take unnecessary and excessive risks
that could threaten the value of the Company;
(B) Employee
compensation plans that unnecessarily expose the Company to risks; and
1
(C) Employee
compensation plans that could encourage the manipulation of reported earnings
of the Company to enhance the compensation of an employee;
(vi) The
Company has required that bonus payments, as defined in the regulations and
guidance established under section 111 of EESA (bonus payments), of the SEOs
and twenty next most highly compensated employees be subject to a recovery or
clawback provision during any part of the most recently completed fiscal year
that was a TARP period if the bonus payments were based on materially
inaccurate financial statements or any other materially inaccurate performance
metric criteria;
(vii) The
Company has prohibited any golden parachute payment, as defined in the
regulations and guidance established under section 111 of EESA, to an SEO or
any of the next five most highly compensated employees during the period
beginning on the later of the closing date of the agreement between the Company
and Treasury or June 15, 2009 and ending with the last day of the Companys
fiscal year containing that date;
(viii) The
Company has limited bonus payments to its applicable employees in accordance
with section 111 of EESA and the regulations and guidance established
thereunder during the period beginning on the later of the closing date of the
agreement between the Company and Treasury or June 15, 2009 and ending with the
last day of the Companys fiscal year containing that date;
(ix) The
board of directors of the Company has established an excessive or luxury
expenditures policy, as defined in the regulations and guidance established
under section 111 of EESA, by the later of September 14, 2009, or ninety days
after the closing date of the agreement between the Company and Treasury; this
policy has been provided to Treasury and its primary regulatory agency; the
Company and its employees have complied with this policy during the applicable
period; and any expenses that, pursuant to this policy, required approval of
the board of directors, a committee of the board of directors, an SEO, or an
executive officer with a similar level of responsibility were properly
approved;
(x) The
Company will permit a non-binding shareholder resolution in compliance with any
applicable Federal securities rules and regulations on the disclosures provided
under the Federal securities laws related to SEO compensation paid or accrued
during the period beginning on the later of the closing date of the agreement
between the Company and Treasury or June 15, 2009 and ending with the last day
of the Companys fiscal year containing that date;
(xi) The
Company will disclose the amount, nature, and justification for the offering
during the period beginning on the later of the closing date of the agreement
between the Company and Treasury or June 15, 2009 and ending with the last day
of the Company s fiscal year containing that date of any perquisites, as
defined in the regulations and guidance established under section 111 of EESA,
whose total value exceeds $25,000 for any employee who is subject to the bonus
payment limitations identified in paragraph (viii);
(xii) The
Company will disclose whether the Company, the board of directors of the
Company, or the compensation committee of the Company has engaged during the
period beginning on the later of the closing date of the agreement between the
Company and Treasury or June 15, 2009 and ending with the last day of the
Companys fiscal year containing that date, a compensation consultant; and the
services the compensation consultant or any affiliate of the compensation
consultant provided during this period;
2
(xiii) The
Company has prohibited the payment of any gross-ups, as defined in the
regulations and guidance established under section 111 of EESA, to the SEOs and
the next twenty most highly compensated employees during the period beginning
on the later of the closing date of the agreement between the Company and
Treasury or June 15, 2009 and ending with the last day of the Companys fiscal
year containing that date;
(xiv) The
Company has substantially complied with all other requirements related to
employee compensation that are provided in the agreement between the Company
and Treasury, including any amendments;
(xv) The
Company has submitted to Treasury a complete and accurate list of the SEOs and
the twenty next most highly compensated employees for the current fiscal year
and the most recently completed fiscal year, with the non-SEOs ranked in
descending order of level of annual compensation, and with the name, title, and
employer of each SEO and most highly compensated employee identified; and
(xvi) I
understand that a knowing and willful false or fraudulent statement made in
connection with this certification may be punished by fine, imprisonment, or
both. (See, for example, 18
U.S.C. 1001.)
IN
WITNESS WHEREOF, the undersigned has executed this Certificate as of February
25, 2010.
|
|
|
|
|
FIRST
HORIZON NATIONAL CORPORATION
|
|
|
|
By: /s/
D. Bryan Jordan
|
|
|
|
|
|
Name: D.
Bryan Jordan
|
|
Title:
President and Chief Executive Officer
|
3
EX-99.2
17
c60287_ex99-2.htm
EXHIBIT 99.2
FIRST HORIZON NATIONAL CORPORATION
PRINCIPAL FINANCIAL OFFICERS CERTIFICATE
Provided Pursuant to 31 CFR 30.15
This
Certificate is provided pursuant to 31 CFR 30.15 in relation to the
participation of First Horizon National Corporation (the Company) in the
Capital Purchase Program (CPP) of the U.S. Department of the Treasury (the
Treasury) pursuant to the Letter Agreement of the Company with the Treasury
dated as of November 14, 2008. Under the CPP, the Treasury purchased 866,540
shares of the Companys Preferred Stock, Series CPP, along with a common stock
warrant (collectively, the Securities). This Certificate is provided to the
Company for inclusion as an exhibit to the Companys Annual Report on Form 10-K
for the year ended December 31, 2009.
* * * * *
I, William C.
Losch III, certify, based on my knowledge, that:
(i) The
compensation committee of the Company has discussed, reviewed, and evaluated
with senior risk officers at least every six months during the period beginning
on the later of September 14, 2009, or ninety days after the closing date of
the agreement between the TARP recipient and Treasury and ending with the last
day of the TARP recipients fiscal year containing that date (the applicable
period), the senior executive officer (SEO) compensation plans and the
employee compensation plans and the risks these plans pose to the Company;
(ii) The
compensation committee of the Company has identified and limited during the
applicable period any features of the SEO compensation plans that could lead
SEOs to take unnecessary and excessive risks that could threaten the value of
the Company, and during that same applicable period has identified any features
of the employee compensation plans that pose risks to the Company and has
limited those features to ensure that the Company is not unnecessarily exposed
to risks;
(iii) The
compensation committee has reviewed, at least every six months during the
applicable period, the terms of each employee compensation plan and identified
any features of the plan that could encourage the manipulation of reported
earnings of the Company to enhance the compensation of an employee, and has
limited any such features;
(iv)
The compensation committee of the
Company will certify to the reviews of the SEO compensation plans and employee
compensation plans required under (i) and (iii) above;
(v) The
compensation committee of the Company will provide a narrative description of how
it limited during any part of the most recently completed fiscal year that
included a TARP period the features in
|
|
|
|
(A)
|
SEO
compensation plans that could lead SEOs to take unnecessary and excessive
risks that could threaten the value of the Company;
|
|
|
|
|
(B)
|
Employee
compensation plans that unnecessarily expose the Company to risks; and
|
1
|
|
|
|
(C)
|
Employee
compensation plans that could encourage the manipulation of reported earnings
of the Company to enhance the compensation of an employee;
|
(vi) The
Company has required that bonus payments, as defined in the regulations and
guidance established under section 111 of EESA (bonus payments), of the SEOs
and twenty next most highly compensated employees be subject to a recovery or
clawback provision during any part of the most recently completed fiscal year
that was a TARP period if the bonus payments were based on materially
inaccurate financial statements or any other materially inaccurate performance
metric criteria;
(vii) The
Company has prohibited any golden parachute payment, as defined in the
regulations and guidance established under section 111 of EESA, to an SEO or
any of the next five most highly compensated employees during the period
beginning on the later of the closing date of the agreement between the Company
and Treasury or June 15, 2009 and ending with the last day of the Companys
fiscal year containing that date;
(viii) The
Company has limited bonus payments to its applicable employees in accordance
with section 111 of EESA and the regulations and guidance established
thereunder during the period beginning on the later of the closing date of the
agreement between the Company and Treasury or June 15, 2009 and ending with the
last day of the Companys fiscal year containing that date;
(ix) The
board of directors of the Company has established an excessive or luxury
expenditures policy, as defined in the regulations and guidance established
under section 111 of EESA, by the later of September 14, 2009, or ninety days
after the closing date of the agreement between the Company and Treasury; this
policy has been provided to Treasury and its primary regulatory agency; the
Company and its employees have complied with this policy during the applicable
period; and any expenses that, pursuant to this policy, required approval of
the board of directors, a committee of the board of directors, an SEO, or an
executive officer with a similar level of responsibility were properly approved;
(x) The
Company will permit a non-binding shareholder resolution in compliance with any
applicable Federal securities rules and regulations on the disclosures provided
under the Federal securities laws related to SEO compensation paid or accrued
during the period beginning on the later of the closing date of the agreement
between the Company and Treasury or June 15, 2009 and ending with the last day
of the Companys fiscal year containing that date;
(xi) The
Company will disclose the amount, nature, and justification for the offering
during the period beginning on the later of the closing date of the agreement
between the Company and Treasury or June 15, 2009 and ending with the last day
of the Company s fiscal year containing that date of any perquisites, as
defined in the regulations and guidance established under section 111 of EESA,
whose total value exceeds $25,000 for any employee who is subject to the bonus
payment limitations identified in paragraph (viii);
(xii) The
Company will disclose whether the Company, the board of directors of the
Company, or the compensation committee of the Company has engaged during the
period beginning on the later of the closing date of the agreement between the
Company and Treasury or June 15, 2009 and ending with the last day of the
Companys fiscal year containing that date, a compensation consultant; and the
services the compensation consultant or any affiliate of the compensation
consultant provided during this period;
2
(xiii) The
Company has prohibited the payment of any gross-ups, as defined in the
regulations and guidance established under section 111 of EESA, to the SEOs and
the next twenty most highly compensated employees during the period beginning
on the later of the closing date of the agreement between the Company and
Treasury or June 15, 2009 and ending with the last day of the Companys fiscal
year containing that date;
(xiv) The
Company has substantially complied with all other requirements related to
employee compensation that are provided in the agreement between the Company
and Treasury, including any amendments;
(xv) The
Company has submitted to Treasury a complete and accurate list of the SEOs and
the twenty next most highly compensated employees for the current fiscal year
and the most recently completed fiscal year, with the non-SEOs ranked in
descending order of level of annual compensation, and with the name, title, and
employer of each SEO and most highly compensated employee identified; and
(xvi) I
understand that a knowing and willful false or fraudulent statement made in
connection with this certification may be punished by fine, imprisonment, or
both. (See, for example, 18 U.S.C.
1001.)
IN
WITNESS WHEREOF, the undersigned has executed this Certificate as of February
25, 2010.
|
|
|
|
|
FIRST
HORIZON NATIONAL CORPORATION |
|
|
|
|
|
|
|
By: /s/
William C. Losch III |
|
|
|
|
|
Name:
|
William C. Losch III |
|
|
Title: |
Executive Vice President and
Chief Financial Officer |
|
3
-----END PRIVACY-ENHANCED MESSAGE-----