-----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, QDMGc2BKWvGjAYY+N7hVnXisUzY0tumOvYZYsLi9YphEAB22isfaIwscLVi6uVB+ UpOfqqOPg0f8hJcu2Jp6qw== 0001157523-04-006557.txt : 20040721 0001157523-04-006557.hdr.sgml : 20040721 20040721080108 ACCESSION NUMBER: 0001157523-04-006557 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040720 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040721 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15185 FILM NUMBER: 04923073 BUSINESS ADDRESS: STREET 1: 165 MADISON AVE CITY: MEMPHIS STATE: TN ZIP: 38103 BUSINESS PHONE: 9015234638 MAIL ADDRESS: STREET 1: 165 MADISON AVE 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 8-K 1 a4684692.txt FIRST HORIZON NATIONAL CORP. 8-K July 21, 2004 Securities and Exchange Commission 450 Fifth Street N.W. Washington, D.C. 20549 Re: First Horizon National Corporation Commission file number 0-4491 Quarterly Report on Form 8-K Gentlemen: On behalf of First Horizon National Corporation, included for filing, via EDGAR, is Form 8-K including the Earnings Release for the fiscal quarter ended June 30, 2004. Any requests for additional information or comments with respect to this filing may be addressed to: Marlin L. Mosby III Executive Vice President and Chief Financial Officer, telephone number (901) 523-5620. Sincerely, Debra L. White Vice President, External Reporting Enclosures SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) - July 20, 2004 FIRST HORIZON NATIONAL CORPORATION (Exact Name of Registrant as Specified in Charter) TENNESSEE 000-4491 62-0803242 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 165 MADISON AVENUE MEMPHIS, TENNESSEE 38103 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code - (901) 523-4444 ITEM 7. Financial Statements and Exhibits (c) Exhibits The following exhibit is furnished pursuant to Item 12, is not to be considered "filed" under the Securities Exchange Act of 1934, as amended ("Exchange Act"), and shall not be incorporated by reference into any of First Horizon National Corporation's ("Corporation") previous or future filings under the Securities Act of 1933, as amended, or the Exchange Act. Exhibit # Description - --------- ----------- 99.1 Earnings Release for Quarter Ended 6/30/04 ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION Furnished as Exhibit 99.1 is a copy of First Horizon National Corporation's earnings release for the quarter ended June 30, 2004, which was issued July 20, 2004. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FIRST HORIZON NATIONAL CORPORATION Date: July 20, 2004 By: /s/ Marlin L. Mosby, III ----------------------------------------- Name: Marlin L. Mosby, III Title: Executive Vice President and Chief Financial Officer Exhibit Index ------------- The following exhibit is furnished pursuant to Item 12, is not to be considered "filed" under the Exchange Act, and shall not be incorporated by reference into any of the Corporation's previous or future filings under the Securities Act of 1933, as amended, or the Exchange Act. Exhibit # Description - --------- ----------- 99.1 Earnings Release for Quarter Ended 6/30/04 EX-99.1 2 a4684692ex991.txt PRESS RELEASE EXHIBIT 99.1 FHN Reports Financial Results for Second Quarter 2004 MEMPHIS, Tenn.--(BUSINESS WIRE)--July 21, 2004--First Horizon National Corporation (NYSE:FHN): -- Retail/Commercial Banking pre-tax earnings more than doubled -- Loans grew 20 percent and asset quality continued to improve -- Mortgage Banking transitioned to lower refinance activity -- Capital Markets' fixed income sales declined due to anticipation of rising interest rates -- Return on equity was 25.5 percent and return on assets was 1.75 percent First Horizon National Corporation (FHN), formerly First Tennessee National Corporation, announced financial results for second quarter 2004. Earnings for second quarter 2004 were $118.4 million, or $.92 diluted earnings per share compared to earnings of $118.4 million, or $.90 diluted earnings per share for second quarter 2003. For the six months ended June 30, 2004, earnings were $237.7 million, or $1.84 diluted earnings per share compared to $237.4 million, or $1.81 diluted earnings per share for 2003. As previously disclosed this quarter's earnings include the adoption of SAB No. 105, which prohibits the inclusion of estimated servicing cash flows within the valuation of interest rate lock commitments under SFAS No. 133. FHN previously included a portion of the value of the associated servicing cash flows when recognizing loan commitments at inception and throughout its life. The adoption of SAB No. 105 created an accounting change in second quarter 2004 and lowered earnings by $8.4 million and diluted earnings per share by $0.04. This impact is a one-time change and will not affect the ongoing economic value of this business. "We are continuing to execute our expansion strategies, including investing in key businesses, while transitioning to the rising interest rate environment," said Chairman and CEO Ken Glass. "As a result, earnings per share grew seven percent if adjusted for the unfavorable impact from the adoption of the one-time accounting change. These results reflect a healthy mix of businesses led by the strong performance of Retail/Commercial Banking which overcame the significant reductions in mortgage refinance activity and fixed income securities sales experienced in other business lines." Return on average shareholders' equity and return on average assets were 25.5 percent and 1.75 percent, respectively, for second quarter 2004 compared to 26.5 percent and 1.89 percent for second quarter 2003. For the six months ended June 30, 2004, return on average shareholders' equity and return on average assets were 25.5 percent and 1.83 percent, respectively, compared to 27.1 percent and 1.98 percent for 2003. Total assets were $27.3 billion, shareholders' equity was $1.9 billion and market capitalization was $5.7 billion on June 30, 2004, compared to $27.9 billion, $1.8 billion and $5.6 billion, respectively, on June 30, 2003. "We are well-positioned for continued growth as we execute our existing strategy," concluded Glass. "As one of the few leading independent financial services organizations to offer a diverse portfolio of financial products and services in niche markets, and based on an absolute commitment to customer service, we are poised to leverage our existing national footprint and generate additional cross-sell opportunities to our targeted customers. Thanks to the efforts of our engaged employees, we are well on the way to achieving our vision of being a premier national financial services company continuing to produce industry-leading levels of profitability and growth." QUARTERLY PERFORMANCE HIGHLIGHTS As previously announced, FHN has adapted its segments to reflect the common activities and operations of aggregated business segments across the various delivery channels. Prior periods have been restated for comparability. Detailed descriptions of the new segments are provided in Table A-8. Retail/Commercial Banking Pre-tax earnings grew from $46.2 million to $101.7 million as national expansion initiatives created further advances in cross-selling (penetration of the national customer base who have purchased multiple financial services has now increased to 34 percent), market penetration in Tennessee markets continued to increase, asset quality improved, fee income sources rebounded, and efficiency improvements were realized. Loan growth of 20 percent reflected strength in consumer and construction lending, which are leveraging FHN's national footprint, as well as renewed signs of commercial loan growth. Checking and savings account balances grew 5 percent as the introduction of convenient hours and free checking in the Tennessee and Virginia markets has accelerated product sales. As a result of this product growth net interest income related to retail/commercial banking activities grew 16 percent over second quarter last year. Noninterest income grew 12 percent to $121.4 million and represented 42 percent of revenues. Merchant processing fees grew 40 percent as an improving economy helped increase travel activity and several small acquisitions were completed. Sales of investments and asset management fees also experienced double-digit growth as financial planning initiatives continued to position FHN as a primary provider of wealth management products and services. Net charge-offs fell to 30 basis points, reflecting the reduced risk in the loan portfolio due to the economic recovery and a change in the loan mix which resulted in a $15.6 million reduction in provision for loan losses. The efficiency ratio for retail/commercial banking activities has consistently shown improvement over the last five quarters as discretionary spending has been reduced and the returns on last year's investments and process initiatives continue to pay off. Additionally, this quarter's results include $2.5 million incremental investment spending on the Middle Tennessee and Northern Virginia market expansion plans. Mortgage Banking Pre-tax earnings decreased from $103.9 million to $46.4 million, which included the unfavorable $8.4 million impact from the one-time accounting change related to SAB No. 105. The remaining $49.1 million decrease in earnings was primarily driven by declining origination revenues due to a drop in refinancing activities and the emergence of competitive pricing pressures. Partially offsetting the decline in origination revenues was an improvement in servicing profitability due to reduced impairment expense and lower operating expenses as activity levels fell. Mortgage originations volume fell 41 percent to $8.9 billion, as refinancing volume declined from 76 percent of total originations in the second quarter of 2003 to 47 percent this quarter. Additionally, margins on loans sold decreased as competitive pressures in the market unfavorably impacted origination revenue by $16.2 million. In contrast to the reduction in refinancings, home purchase originations increased 29 percent as the sales force continued to grow at a double-digit pace and the focus of the sales force continued to shift from refinance to purchase business. As a result of these impacts and the $8.4 million impact from SAB No. 105, origination revenues decreased $91.5 million. The servicing macro hedge, the natural offset to fluctuations in refinance origination revenues, performed as expected with servicing net revenues improving from a loss of $25.5 million in 2003 to $14.5 million net revenue in 2004. Total fees associated with mortgage servicing increased 26 percent to $54.1 million due to growth in the servicing portfolio and the favorable impact of lower prepayment activity. The mortgage-servicing portfolio was $72.2 billion on June 30, 2004, an increase of 13 percent from $64.0 billion on June 30, 2003. Additionally, as a result of improvements in processes and technology, productivity improved resulting in a 24 percent reduction of servicing costs. MSR net hedge gains decreased 90 percent to $4.0 million from $39.0 million. This decline, predominantly driven by generally higher interest rates combined with significant changes in the shape of the yield curve, includes an unfavorable change in hedge ineffectiveness of $27.6 million creating a $13.1 million loss this quarter, compared to $14.5 million of earnings in 2003. However, MSR impairment decreased $72.7 million, including the effect of the restratification of the servicing portfolio tranches, triggered by the impact that rising interest rates had on the predominant risk characteristics of the mortgage servicing rights (MSR) portfolio, resulting in reduced impairment of $15.4 million. Operating expenses improved $5.9 million reflecting the overall decline in activity levels. Capital Markets Pre-tax earnings declined from $44.7 million to $25.0 million primarily due to a reduction in fixed income securities sales, net of a related decline in commissions and incentives. In anticipation of the Fed's initial interest rate hike, fixed income investors delayed their purchases. In addition to this impact, last year's second quarter was favorably impacted by higher cashflows from the prepayments of mortgage backed products and agency calls. As a result of these impacts, revenues from fixed income sales to depository and non-depository investors fell $49.8 million. Revenues from other fee sources includes fee income from activities such as investment banking, equity research, portfolio advisory and the sale of bank owned life insurance. These revenues fell $7.6 million from last year's peak second and fourth quarters primarily due to a decline in the volume of trust preferred issuances. Revenues from depository institutions represented 34 percent of capital markets noninterest income in 2004 compared to 41 percent in 2003, and revenues from non-depository institutions represented 23 percent of income in 2004 compared to 26 percent in 2003. Revenues from other products and services represented 43 percent of capital markets noninterest income in 2004 compared to 33 percent in 2003. Corporate The Corporate segment improved from a $23.2 million pre-tax loss last year to a $3.5 million pre-tax loss this quarter. Reduced discretionary spending helped lower expenses $15.3 million to $10.2 million. Security portfolio restructurings and venture capital gains resulted in $2.9 million in gains this quarter versus a $1.1 million net loss last year. Additionally, the Corporate business segment now includes the funding function for the corporation and any impact from balance sheet positioning. Net interest income improved $.8 million since last year's second quarter due to balance sheet restructurings to take advantage of the higher interest rate environment. INCOME STATEMENT Revenue Total revenue decreased 13 percent to $565.9 million in second quarter 2004 from $647.5 million in second quarter 2003. Noninterest income provides the majority of FHN's revenue and contributed 62 percent to total revenue in second quarter 2004 compared to 69 percent in second quarter 2003. Net Interest Income During second quarter 2004 net interest income increased 6 percent to $213.6 million from $200.9 million in 2003. Net interest income was positively impacted by growth in the retail and commercial lending portfolios. First National Bank of Springdale (FNB), which was divested on December 31, 2003, contributed $2.8 million to net interest income in second quarter 2003. Net interest income was negatively impacted by compression in the net interest margin, which decreased to 3.63 percent for second quarter 2004 from 3.74 percent for second quarter 2003, primarily due to the repricing of assets to lower yields while liability rates were less sensitive to rate movements, and due to a change in the mix of the loan portfolio to a higher percentage of floating rate products. Investment yields declined as accelerated prepayments of investments in mortgage-backed securities were reinvested in 2003 at lower rates. In the near-term, a decline in prepayment volume and a slowdown in the repricing of the commercial and retail loan portfolios coupled with steps management has taken to manage the interest rate sensitivity position of the company should result in a more stable net interest margin. Over the long-term, FHN's strategies to manage the interest rate sensitivity of the balance sheet position are designed to allow the net interest margin to improve in a higher interest rate environment. Noninterest Income Second quarter 2004 noninterest income decreased 21 percent to $352.3 million from $446.6 million in 2003. The decline in noninterest income resulted from the contraction in mortgage banking and capital markets revenues, which fell $108.7 million in total. All other noninterest income categories grew 13 percent, or $14.4 million. This growth was led by merchant processing noninterest income, which increased 40 percent, or $5.6 million, primarily due to acquisitions as transactions processed increased 21 percent. In second quarter 2004, sales of securities resulted in net security gains of $3.2 million compared to net security losses of $.7 million in 2003. Noninterest Expense Total noninterest expense for second quarter 2004 decreased 14 percent to $384.0 million from $448.4 million in 2003. Noninterest expense in second quarter 2003 included approximately $25 million of discretionary spending on performance enhancing initiatives. Personnel expense decreased 15 percent to $238.4 million from $279.3 million in 2003. This decrease is primarily due to lower activity levels in Capital Markets in second quarter 2004 and approximately $3 million of expense in 2003 resulting from severance. All other expense decreased 26 percent to $75.1 million in 2004 from $101.3 million in 2003. All other expense was favorably impacted by lower legal and professional fees and by a reduction in contract employment expense primarily associated with lower volumes in mortgage banking. Also impacting the decline was a discretionary contribution of $9.8 million made in second quarter 2003 to the First Horizon Foundation, a non-profit entity dedicated to supporting charitable causes in the communities where FHN does business. Provision for Loan Losses / Asset Quality The provision for loan losses decreased 55 percent to $12.3 million in 2004 compared to $27.5 million in 2003. An analytical model based on historical loss experience adjusted for current events, trends and economic conditions is used by management to determine the amount of provision to be recognized and to assess the adequacy of the loan loss allowance. The improvement in second quarter 2004's provision is related to the positive shift in the mix of the loan portfolio and specific allocations related to large commercial credits. The risk profile of the retail loan portfolio improved as the mix shifted to a greater concentration of high credit score products. Also impacting the risk profile of this portfolio was the transfer of certain higher risk residential mortgage loans to held for sale in 2003. The risk profile of the commercial loan portfolio improved as indicated by current lower levels of watch and classified loans. Net charge-offs decreased to $11.0 million in second quarter 2004 compared to $12.9 million in second quarter 2003. Net charge-offs were impacted by improvement in the consumer loan portfolios. Nonperforming loans in the loans portfolio were $45.5 million on June 30, 2004, compared to $59.4 million on June 30, 2003. (See the table on A-5 for an analysis of the allowance for loan losses and details on nonperforming assets and the table on A-6 for asset quality ratios). Income Taxes The effective tax rate was 30.2 percent for second quarter 2004 compared to 31.0 percent for the same period in 2003, but down from 33.7 percent in first quarter 2004. The effective tax rates in both second quarter periods reflect the favorable settlement of prior years' tax returns. AVERAGE BALANCE SHEET Total average assets increased 9 percent to $27.3 billion for second quarter 2004. Total loans increased 20 percent to $14.8 billion as retail loans increased 31 percent and commercial loans grew 9 percent. Loans held for sale decreased 9 percent to $4.7 billion. Interest-bearing core deposits increased 4 percent to $6.0 billion. Total core deposits decreased 1 percent due to lower mortgage escrow balances, while Retail/Commercial Banking core deposits increased 4 percent. Purchased funds increased 13 percent to $10.8 billion. Average shareholders' equity increased 4 percent in second quarter 2004, as compared to the second quarter of 2003. (See A-8 for additional information on the balance sheet impact of certain transactions and new accounting standards.) OUTLOOK "Given the current expectations for our operating environment, our earnings per share growth for 2004 should be in line with industry growth of 6 to 8 percent and consistent with FirstCall's consensus outlook," said Chief Financial Officer, Marty Mosby. "As we look out into the future, we believe that First Horizon's strategies should achieve a long-term growth rate which will continue to rank us among the high-performing financial services companies." This outlook excludes the $8.4 million impact from the SAB No. 105 one-time accounting change experienced this quarter and is based on assumptions regarding key drivers of FHN's operating environment which include the expectation and level of future interest rates in general and the impact in particular on fixed income sales, loan and deposit growth, refinancing activities, competitive and regulatory pressures as well as other assumptions which are more specifically discussed in the most recently filed 10-K and 10-Q. OTHER INFORMATION This press release contains forward-looking statements involving significant risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking information. Those factors include general economic and financial market conditions, including expectations of and actual timing and amount of interest rate movements, competition, ability to execute business plans, geo-political developments, items already mentioned in this press release, and other factors described in FHN's recent filings with the SEC. FHN disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein to reflect future events or developments. In compliance with the SEC's regulations concerning fair disclosure, FHN provides additional disclosure and discussion related to FHN's earnings and business segment performance through a financial supplement which is available on FHN's website at www.FirstHorizon.com. Management will also host a conference call at 8:15 a.m. Eastern Time on July 21, 2004, to review earnings and performance trends. Domestic callers wishing to participate in the call may dial toll-free starting at 8:00 a.m. Eastern Time July 21, 2004, at 1-888-202-2422. International participants may dial 913-981-5592. The conference will be webcast live through the investor relations section of FHN's website. To access the webcast, visit http://www.shareholder.com/ftb/medialist.cfm. For three weeks from the press release date, FHN will respond to individual requests for clarification of the provided disclosures. However, we will make every effort not to provide, and you should not expect to receive, material non-public information as that term is defined in the SEC Regulation FD. Without limiting the foregoing, after the conference call and except for the guidance provided herein, we will not provide any earnings guidance, directly or indirectly, express or implied. GENERAL INFORMATION About First Horizon The 12,000 employees of First Horizon National Corp. (NYSE:FHN) provide financial services to individual and business customers through hundreds of offices located in more than 40 states. The corporation's three major brands - FTN Financial, First Horizon, and First Tennessee - provide customers with a broad range of products and services including: -- Capital Markets, one of the nation's top underwriters of U.S. government agency securities -- Mortgage Banking, with one of the nation's top 15 mortgage originators and servicers, which earned a top-10 ranking in customer satisfaction from J.D. Power and Associates -- Retail/Commercial Banking, with the largest market share in Tennessee and has earned one of the highest customer retention rates of any bank in the country FHN companies have been recognized as some of the nation's best employers by AARP, Working Mother, Business Week and Fortune magazines. FHN also was named one of the nation's 100 best corporate citizens by Business Ethics magazine. More information can be found at www.FirstHorizon.com. FIRST HORIZON NATIONAL CORPORATION STATEMENTS OF INCOME Quarterly Growth (Unaudited) --------------------------------------------------------------------- Quarter Ended June 30 ------------------------ Growth (Thousands) 2004 2003 Rate (%) -------------------------------------------------------------------- Interest income $ 277,815 $ 266,954 4.1 + Less interest expense 64,209 66,048 2.8 -- -------------------------------------------------------------------- Net interest income 213,606 200,906 6.3 + Provision for loan losses 12,292 27,501 55.3 -- -------------------------------------------------------------------- Net interest income after provision for loan losses 201,314 173,405 16.1 + Noninterest income: Mortgage banking 122,242 174,441 29.9 -- Capital markets 102,195 158,598 35.6 -- Deposit transactions and cash management 38,234 38,626 1.0 -- Merchant processing 19,365 13,860 39.7 + Insurance premiums and commissions 14,104 15,185 7.1 -- Trust services and investment management 11,891 10,825 9.8 + Gains on divestitures 1,800 - NM Securities gains/(losses) 3,214 (752) NM Other 39,254 35,716 9.9 + -------------------------------------------------------------------- Total noninterest income 352,299 446,499 21.1 -- -------------------------------------------------------------------- Adjusted gross income after provision for loan losses 553,613 619,904 10.7 -- Noninterest expense: Employee compensation, incentives and benefits 238,402 279,306 14.6 -- Occupancy 21,699 19,789 9.7 + Equipment rentals, depreciation, and maintenance 17,573 16,616 5.8 + Operations services 15,944 17,330 8.0 -- Communications and courier 13,223 12,316 7.4 + Amortization of intangible assets 2,191 1,738 26.1 + Other 75,048 101,275 25.9 -- -------------------------------------------------------------------- Total noninterest expense 384,080 448,370 14.3 -- -------------------------------------------------------------------- Pretax income 169,533 171,534 1.2 -- Applicable income taxes 51,149 53,182 3.8 -- -------------------------------------------------------------------- Net income $ 118,384 $ 118,352 -- ======================== -------------------------------------------------------------------- Diluted earnings per common share $ .92 $ .90 2.2 + Dividends declared per common share $ .40 $ .30 SELECTED FINANCIAL RATIOS: -------------------------- Return on average assets 1.75% 1.89% Return on average shareholders' equity 25.5 26.5 -------------------------------------------------------------------- A-1 FIRST HORIZON NATIONAL CORPORATION STATEMENTS OF INCOME Yearly Growth (Unaudited) -------------------------------------------------------------------- Year-to-date June 30 ------------------------ Growth (Thousands) 2004 2003 Rate (%) --------------------------------------------------------------------- Interest income $ 531,830 $ 522,750 1.7 + Less interest expense 122,215 127,564 4.2 -- -------------------------------------------------------------------- Net interest income 409,615 395,186 3.7 + Provision for loan losses 26,521 54,951 51.7 -- -------------------------------------------------------------------- Net interest income after provision for loan losses 383,094 340,235 12.6 + Noninterest income: Mortgage banking 253,773 370,317 31.5 -- Capital markets 220,123 298,273 26.2 -- Deposit transactions and cash management 72,195 71,402 1.1 + Merchant processing 36,108 26,436 36.6 + Insurance premiums and commissions 30,498 29,648 2.9 + Trust services and investment management 23,695 22,208 6.7 + Gains on divestitures 3,800 - NM Securities gains/(losses) 4,099 (1,808) NM Other 78,133 72,201 8.2 + -------------------------------------------------------------------- Total noninterest income 722,424 888,677 18.7 -- -------------------------------------------------------------------- Adjusted gross income after provision for loan losses 1,105,518 1,228,912 10.0 -- Noninterest expense: Employee compensation, incentives and benefits 476,652 541,146 11.9 -- Occupancy 42,662 39,394 8.3 + Equipment rentals, depreciation, and maintenance 35,349 33,806 4.6 + Operations services 31,343 35,088 10.7 -- Communications and courier 25,026 24,294 3.0 + Amortization of intangible assets 4,362 3,512 24.2 + Other 140,662 198,494 29.1 -- -------------------------------------------------------------------- Total noninterest expense 756,056 875,734 13.7 -- -------------------------------------------------------------------- Pretax income 349,462 353,178 1.1 -- Applicable income taxes 111,807 115,797 3.4 -- -------------------------------------------------------------------- Net income $ 237,655 $ 237,381 .1 + =========== =========== -------------------------------------------------------------------- Diluted earnings per common share $ 1.84 $ 1.81 1.7 + Dividends declared $ .80 $ .60 SELECTED FINANCIAL RATIOS: ------------------------- Return on average assets 1.83% 1.98% Return on average shareholders' equity 25.5 27.1 -------------------------------------------------------------------- Certain previously reported amounts have been reclassified to agree with current presentation. A-2 FIRST HORIZON NATIONAL CORPORATION AVERAGE STATEMENTS OF CONDITION Quarterly Growth (Unaudited) ------------------------------------------------------------------- Quarter Ended June 30 ------------------------ Growth (Thousands) 2004 2003 Rate (%) ------------------------------------------------------------------- Loans, net of unearned income: Commercial: Commercial, financial and industrial $ 4,736,562 $ 4,274,582 10.8 + Real estate commercial 965,102 1,091,319 11.6 -- Real estate construction 796,616 616,385 29.2 + -------------------------------------------------------------------- Total commercial loans 6,498,280 5,982,286 8.6 + Retail: Real estate residential 7,253,653 5,409,717 34.1 + Real estate construction 619,141 396,412 56.2 + Other retail 188,705 265,311 28.9 -- Credit card receivables 258,362 260,560 .8 -- -------------------------------------------------------------------- Total retail loans 8,319,861 6,332,000 31.4 + -------------------------------------------------------------------- Total loans, net of unearned income 14,818,141 12,314,286 20.3 + Investment securities 2,474,597 2,199,188 12.5 + REMIC securities (a) - 213,349 100.0 -- Loans held for sale 4,689,674 5,160,628 9.1 -- Other earning assets 1,658,019 1,676,703 1.1 -- -------------------------------------------------------------------- Total earning assets 23,640,431 21,564,154 9.6 + Cash and due from banks 718,411 732,895 2.0 -- Other assets 2,917,438 2,814,801 3.6 + -------------------------------------------------------------------- Total assets $27,276,280 $25,111,850 8.6 + ========================----------- Certificates of deposit under $100,000 and other time $ 1,880,652 $ 1,872,108 .5 + Other interest-bearing deposits 4,146,669 3,942,533 5.2 + -------------------------------------------------------------------- Total interest-bearing core deposits 6,027,321 5,814,641 3.7 + Demand deposits 1,623,176 1,807,457 10.2 -- Other noninterest-bearing deposits 3,090,992 3,195,766 3.3 -- -------------------------------------------------------------------- Total core deposits 10,741,489 10,817,864 .7 -- Certificates of deposit $100,000 and more 6,580,741 4,987,649 31.9 + -------------------------------------------------------------------- Total deposits 17,322,230 15,805,513 9.6 + Short-term borrowed funds 4,183,380 4,567,897 8.4 -- Term borrowings (a) 2,441,962 1,205,718 102.5 + Other liabilities 1,457,324 1,597,315 8.8 -- Qualifying capital securities (a) (b) - 100,000 100.0 -- Preferred stock of subsidiary (a) 452 44,429 99.0 -- Shareholders' equity 1,870,932 1,790,978 4.5 + -------------------------------------------------------------------- Total liabilities and shareholders' equity $27,276,280 $25,111,850 8.6 + =========== =========== -------------------------------------------------------------------- (a) See A-8 for additional information on the impact of certain transactions and new accounting standards. (b) Guaranteed preferred beneficial interests in FHN's junior subordinated debentures A-3 FIRST HORIZON NATIONAL CORPORATION PERIOD-END STATEMENTS OF CONDITION (Unaudited) ------------------------------------------------------------------- June 30 ------------------------ Growth (Thousands) 2004 2003 Rate (%) ------------------------------------------------------------------- Loans, net of unearned income: Commercial: Commercial, financial and industrial $ 4,868,903 $ 4,473,933 8.8 + Real estate commercial 960,026 1,007,811 4.7 -- Real estate construction 853,099 638,664 33.6 + ------------------------------------------------------------------- Total commercial loans 6,682,028 6,120,408 9.2 + Retail: Real estate residential 7,524,369 5,678,988 32.5 + Real estate construction 672,802 433,766 55.1 + Consumer 183,476 270,077 32.1 -- Credit card receivables 238,792 263,650 9.4 -- ------------------------------------------------------------------- Total retail loans 8,619,439 6,646,481 29.7 + ------------------------------------------------------------------- Total loans, net of unearned income 15,301,467 12,766,889 19.9 + Investment securities 2,410,814 2,271,527 6.1 + REMIC securities (a) - 189,657 100.0 -- Loans held for sale 3,446,442 5,851,079 41.1 -- Other earning assets 1,708,026 1,167,073 46.4 + ------------------------------------------------------------------- Total earning assets 22,866,749 22,246,225 2.8 + Cash and due from banks 834,549 922,268 9.5 -- Other assets 3,588,401 4,770,741 24.8 -- ------------------------------------------------------------------- Total assets $27,289,699 $27,939,234 2.3 -- ======================== Certificates of deposit under $100,000 and other time $ 1,962,522 $ 1,847,687 6.2 + Other interest-bearing deposits 4,086,146 3,936,820 3.8 + ------------------------------------------------------------------- Total interest-bearing core deposits 6,048,668 5,784,507 4.6 + Demand deposits 2,070,281 2,357,532 12.2 -- Other noninterest-bearing deposits 2,484,075 3,417,696 27.3 -- ------------------------------------------------------------------- Total core deposits 10,603,024 11,559,735 8.3 -- Certificates of deposit $100,000 and more 4,989,021 3,933,071 26.8 + ------------------------------------------------------------------- Total deposits 15,592,045 15,492,806 .6 + Short-term borrowed funds 4,871,922 4,923,608 1.0 -- Term borrowings (a) 2,381,297 1,584,789 50.3 + Other liabilities 2,523,304 3,999,825 36.9 -- Qualifying capital securities (a) (b) - 100,000 100.0 -- Preferred stock of subsidiary (a) 454 44,442 99.0 -- Shareholders' equity 1,920,677 1,793,764 7.1 + ------------------------------------------------------------------- Total liabilities and shareholders' equity $27,289,699 $27,939,234 2.3 -- ======================== ------------------------------------------------------------------- (a) See A-8 for additional information on the impact of certain transactions and new accounting standards. (b) Guaranteed preferred beneficial interests in FHN's junior subordinated debentures A-4 FIRST HORIZON NATIONAL CORPORATION ASSET QUALITY HIGHLIGHTS (Unaudited) --------------------------------------------------------------------- (Thousands) 2Q04 1Q04 4Q03 3Q03 2Q03 --------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES: Beginning Reserve $160,685 $160,333 $161,401 $159,080 $144,484 Provision 12,292 14,229 15,392 16,355 27,501 Loans transferred to held for sale (1,239) (2,087) - - - Divestiture - - (2,652) - - Charge-offs (14,305) (16,085) (17,279) (17,913) (16,383) Recoveries 3,324 4,295 3,471 3,879 3,478 --------------------------------------------------------------------- Ending Balance $160,757 $160,685 $160,333 $161,401 $159,080 ------------------------============================================= Reserve for off-balance sheet commitments $ 7,883 $ 7,001 $ 7,804 $ 6,997 $ 7,536 Total of allowance for loan losses and reserve for off-balance sheet commitments $168,640 $167,686 $168,137 $168,398 $166,616 --------------------------------------------------------------------- NONPERFORMING ASSETS: Lending Activities: Nonperforming loans $ 44,863 $ 37,707 $ 42,488 $ 47,102 $ 57,324 Foreclosed real estate 22,739 20,116 14,224 13,029 8,000 Other assets - 336 336 365 52 --------------------------------------------------------------------- Total Lending Activities 67,602 58,159 57,048 60,496 65,376 --------------------------------------------------------------------- Mortgage Production Activities: Nonperforming loans - held for sale 11,271 9,157 8,754 11,658 7,245 Nonperforming loans - loan portfolio 655 383 542 1,037 2,026 Foreclosed real estate 10,511 9,761 9,851 10,960 8,414 --------------------------------------------------------------------- Total Mortgage Production Activities 22,437 19,301 19,147 23,655 17,685 --------------------------------------------------------------------- Total nonperforming assets $ 90,039 $ 77,460 $ 76,195 $ 84,151 $ 83,061 ============================================= Loans and leases past due 90 days or more $ 25,516 $ 31,167 $ 27,240 $ 28,459 $ 32,208 Period end loans, net of unearned (millions) $ 15,301 $ 14,212 $ 13,990 $ 13,349 $ 12,767 Insured loans 620 632 863 718 814 --------------------------------------------------------------------- Loans excluding insured loans $ 14,681 $ 13,580 $ 13,127 $ 12,631 $ 11,953 ============================================= Off-balance sheet commitments (a) $ 5,607 $ 5,294 $ 5,464 $ 4,639 $ 4,372 --------------------------------------------------------------------- (a) Amount of off-balance sheet commitments for which a reserve has been provided. Lending activities include all activities associated with the loan portfolio. Mortgage production includes activities associated with the mortgage warehouse. A-5 FIRST HORIZON NATIONAL CORPORATION ASSET QUALITY HIGHLIGHTS (Unaudited) --------------------------------------------------------------------- (Thousands) 2Q04 1Q04 4Q03 3Q03 2Q03 --------------------------------------------------------------------- FHN CONSOLIDATED: Nonperforming loans ratio (a) .30% .27% .31% .36% .46% Nonperforming assets ratio (b) .51 .48 .48 .54 .59 Allowance to total loans 1.05 1.13 1.15 1.21 1.25 Allowance to loans excluding insured loans 1.10 1.18 1.22 1.28 1.33 Allowance to nonperforming loans (c) 353.17 421.86 372.61 335.28 268.04 Allowance to nonperforming assets (d) 204.09 235.25 237.74 222.64 209.82 Net charge-off ratio (e) .30 .34 .40 .43 .42 LENDING ACTIVITIES: Nonperforming loans ratio (a) .30% .28% .32% .37% .46% Nonperforming assets ratio (b) .46 .42 .42 .47 .53 Allowance to total loans 1.07 1.16 1.17 1.24 1.27 Allowance to nonperforming loans 352.94 419.58 371.24 337.55 274.27 Allowance to nonperforming assets 234.23 272.03 276.49 262.81 240.49 Net charge-off ratio (e) .31 .35 .41 .44 .42 MORTGAGE PRODUCTION ACTIVITIES: Nonperforming assets ratio (f) .03% .03% .03% .03% .03% --------------------------------------------------------------------- (a) Ratio is nonperforming loans in the loan portfolio to total loans (b) Ratio is nonperforming assets in the loan portfolio to total loans plus foreclosed real estate and other assets (c) Ratio is allowance to nonperforming loans in the loan portfolio (d) Ratio is allowance to nonperforming assets in the loan portfolio (e) Ratio is net charge-offs to average total loans (f) Ratio is nonperforming assets to unpaid principal balance of servicing portfolio A-6 FIRST TENNESSEE NATIONAL CORPORATION BUSINESS SEGMENT HIGHLIGHTS (Unaudited) --------------------------------------------------------------------- (Thousands) 2Q04 1Q04 4Q03 3Q03 2Q03 --------------------------------------------------------------------- RETAIL/COMMERCIAL BANKING Total Revenues $288,841 $274,084 $288,886 $259,204 $252,582 Loan Loss Provision 12,310 14,249 15,333 16,319 27,913 Noninterest Expenses 174,834 170,402 186,280 175,347 178,473 ------------------------------------------------- Pre-Tax Income $101,697 $ 89,433 $ 87,273 $ 67,538 $ 46,196 Taxes 26,903 27,911 31,953 21,420 7,986 ------------------------------------------------- Net Income $ 74,794 $ 61,522 $ 55,320 $ 46,118 $ 38,210 MORTGAGE BANKING Total Revenues $167,409 $163,242 $162,840 $217,694 $230,378 Loan Loss Provision (18) (20) 59 36 (412) Noninterest Expenses 121,112 101,486 95,020 115,191 127,026 ------------------------------------------------ Pre-Tax Income $ 46,315 $ 61,776 $ 67,761 $102,467 $103,764 Taxes 16,853 22,676 25,870 37,774 38,293 ------------------------------------------------- Net Income $ 29,462 $ 39,100 $ 41,891 $ 64,693 $ 65,471 CAPITAL MARKETS Total Revenues $103,004 $119,564 $120,633 $125,120 $162,139 Noninterest Expenses 77,945 88,806 84,879 90,762 117,324 ------------------------------------------------- Pre-Tax Income $ 25,059 $ 30,758 $ 35,754 $ 34,358 $ 44,815 Taxes 9,455 11,776 13,107 12,906 16,720 ------------------------------------------------- Net Income $ 15,604 $ 18,982 $ 22,647 $ 21,452 $ 28,095 CORPORATE Total Revenues $ 6,651 $ 9,244 $ 10,641 $ 4,487 $ 2,306 Noninterest Expenses 10,189 11,282 15,825 28,634 25,547 ------------------------------------------------- Pre-Tax Income $ (3,538) $ (2038) $ (5,184) $(24,147) $(23,241) Taxes (2,062) (1,705) (2,971) (10,167) (9,817) ------------------------------------------------- Net Income $ (1,476) $ (333) $ (2,213) $(13,980) $(13,424) TOTAL CONSOLIDATED Total Revenues $565,905 $566,134 $583,000 $606,505 $647,405 Loan Loss Provision 12,292 14,229 15,392 16,355 27,501 Total Noninterest Expenses 384,080 371,976 382,004 409,934 448,370 ------------------------------------------------- Consolidated Pretax Income $169,533 $179,929 $185,604 $180,216 $171,534 Taxes 51,149 60,658 67,959 61,933 53,182 ------------------------------------------------- Net Income $118,384 $119,271 $117,645 $118,283 $118,352 --------------------------------------------------------------------- See page A-8 for discussion of changes to FHN's business segments. A-7 FIRST HORIZON NATIONAL CORPORATION OTHER HIGHLIGHTS (Unaudited) Balance Sheet: Effective July 1, 2003, FHN adopted Statement of Financial Accounting Standard (SFAS) No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", and classified its mandatorily redeemable preferred stock of subsidiary ($45.1 million on July 1, 2003) as term borrowings. As required by SFAS No. 150 prior periods were not restated. In prior years, FHN has securitized certain real estate loans through a real estate mortgage investment conduit (REMIC) and retained all of the securitized assets. The retained assets were classified on the Consolidated Statements of Condition in "Securities held to maturity". During fourth quarter 2003, FHN elected to purchase all of the mortgage loans remaining in the REMIC ($136.3 million at repurchase). Subsequent to the repurchase of the mortgage loans, these assets are classified as retail real estate residential loans. Effective December 31, 2003, FHN adopted FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", and deconsolidated its subsidiary, First Tennessee Capital I (Capital I), which has issued $100.0 million of capital securities that are fully and unconditionally guaranteed by FHN. As a result of this deconsolidation the capital securities are no longer included on FHN's balance sheet. However, $103.0 million of junior subordinated debentures issued by FHN to Capital I are no longer eliminated in consolidation and appear in term borrowings as of December 31, 2003. On December 31, 2003, FHN completed the sale of substantially all of the assets and liabilities of its wholly owned subsidiary, First National Bank of Springdale (FNB) of Springdale, Arkansas to First Security Bank of Searcy, Arkansas. This transaction resulted in a divestiture gain of $12.5 million. Immediately preceding the sale, FNB had investment securities of approximately $125 million, loans of approximately $165 million, deposits of approximately $300 million and equity of approximately $40 million. Segments: As previously announced, FHN has adapted its segments to reflect the common activities and operations of aggregated business segments across the various delivery channels. Prior periods have been restated for comparability. The new segments are Retail/Commercial Banking, Mortgage Banking, Capital Markets and Corporate. The Retail/Commercial Banking segment consists of Retail/Commercial Banking, Investments, Insurance, Financial Planning, Trust Services and Asset Management, Credit Card, Cash Management, Transaction Processing and Correspondent Services. Retail/Commercial Banking now includes Equity Lending, and held to maturity mortgage and construction loans originated by First Horizon Home Loans which were previously in the mortgage segment. The Mortgage Banking segment consists of core mortgage banking elements including Originations and Servicing. The Capital Markets segment consists of traditional capital markets trading activities, Equity Research, Investment Banking, and Strategic Alliances. The Corporate segment consists of unallocated corporate expenses, expense on trust preferred and REIT preferred stock, bank owned life insurance, unallocated interest income associated with excess capital, Funds Management and Venture Capital. A-8 CONTACT: First Horizon National Corporation Media Information: Kim Cherry, 901-523-4726 or Investor Relations: Mark Yates, 901-523-4068 www.firsthorizon.com -----END PRIVACY-ENHANCED MESSAGE-----