First Horizon Corporation · NYSE:FHN
First Horizon — First Horizon National — Q1 2020 Earnings Presentation
47 slides from First Horizon's earnings presentation, May 5, 2020
Slide 1: First Horizon National Corporation Analyst Packet
First Horizon National Corporation Analyst Packet May 5, 2020
Slide 2: Disclaimer
Disclaimer Forward-Looking Statements This communication contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21 E of the Securities Exchange
Slide 3: FHN: Strong, Diversified, and Differentiated
FHN: Strong, Diversified, and Differentiated Regional and National Footprint Key Highlights1 Market Cap $2.5B Assets $44B Deposits $34B Financial 272 Centers Employees 5,005 Full Service Banking Fitch: BBB Specialty Banking Corporate Stable2 FHN Financial (all 50 states) Ratings Moody’s: Baa3 Stable
Slide 4: First Horizon + IBERIABANK Merger of Equals Overview
First Horizon + IBERIABANK Merger of Equals Overview COMPELLING STRATEGIC BENEFITS Strong cultural alignment with valued-based employee Strong credit culture and risk management practices cultures, relationship-oriented customer service, community and socially-minded organizations Enhanced scale pro
Slide 5: Branch Acquisition Strengthens Share in Key Growth Markets in North Carolina
Branch Acquisition Strengthens Share in Key Growth Markets in North Carolina Pro Forma – Top States Pro Forma – Top States1 ● On November 8, 2019, First Horizon announced an agreement WV to acquire 30 branches from SunTrust (now Truist) that are KS VA MO KY being divested in connection with its 2019
Slide 6: COVID-19: FHN Responding Quickly to Support Employees, Community & Customers
COVID-19: FHN Responding Quickly to Support Employees, Community & Customers ● Created pandemic response task force with senior leaders Company Operations ● Implemented business continuity plan, including remote work policies ● Branches open by appointment or drive-through only ● Emphasis on employe
Slide 7: COVID-19: Providing Customer Support
COVID-19: Providing Customer Support ● Implemented deferrals for more than 500 commercial customers and ~1,900 consumer customers Lending Assistance ● Approximately $600mm of new liquidity lines closed or in process for Borrowers primarily for healthcare-related customers ● Over 5,500 applications a
Slide 8: FHN: Well-Positioned in a Challenging Environment
FHN: Well-Positioned in a Challenging Environment ● Reported/Adjusted1 EPS of $0.04 and $0.051, respectively Solid ● PPNR at $166mm2, up $27mm or 19% YoY driven by profitable balance sheet growth, strong 1Q20 countercyclical business performance and excellent expense management Earnings ● Provision
Slide 9: Key Financial Highlights
KEY FINANCIAL HIGHLIGHTS Px
Slide 10: Financial Results
Financial Results Change vs. $ in millions except per share data 1Q20 4Q19 1Q19 Highlights ● YOY NII increase from loan growth; LQ down due to lower Net Interest Income $303 ($9) $8 accretion, fewer days, and decline in rates; NIM at 3.16% ● YOY increase includes higher Fixed Income ADR; LQ decline
Slide 11: Loan Growth Driven by Increased Loans to Mortgage Companies and Higher Line of Credit Usage
Loan Growth Driven by Increased Loans to Mortgage Companies and Higher Line of Credit Usage ● Period-end total loan balances are up $2.3B LQ Total Loans $35.0B 2020 $3.4B of growth ● Loans to mortgage companies up $1.3B, with $1.2B $34.0B 2019 from 2/25 to 3/31 of the growth occurring in last week o
Slide 12: Deposit Inflows Increase in 1Q20
Deposit Inflows Increase in 1Q20 ● Total deposit balances up $2B LQ Total Deposit Growth Since 12/31/19 ● Total deposit growth driven by a $1.8B increase in market- 110% indexed deposits resulting from customer inflows due to Related to new 108% market volatility market-indexed deposit 106% contract
Slide 13: Regional Banking Segment
Regional Banking Segment Loans by LOB Loans by Type Loans by Geography 2% Commercial C&I TN 22% 17% CRE - Income 26% NC Conmmercial 32% FL Producing (Specialty) CA 47% Commercial 49% Consumer Real 18% Estate 4% TX 4% GA Consumer Loans to Mortgage Companies 6% 13% SC 31% 7% 9% All Other 14% Other Dep
Slide 14: Capital & Loan Loss Reserves
CAPITAL & LOAN LOSS RESERVES 14
Slide 15: Regulatory Capital Position
Regulatory Capital Position Holding Company Capital Bank Level Capital 10.8% 10.4% 9.5% 10.0% 9.4% 10.0% 8.0% 8.0% 8.5% 8.7% 6.5% 6.5% 1Q20 FHNC Regulatory Requirement¹ 1Q20 First Horizon Bank Regulatory Requirement¹ 1Basel III minimum for well-capitalized. 15
Slide 16: Deploying Capital to Support Customers
Deploying Capital to Support Customers ● Strong PPNR growth offset incremental provision, with RWA increase due largely to period-end loan growth ● PPNR earnings supported dividend and 1Q20 provision build ● CET1 impact of ~70bps due to increase in risk-weighted assets: o 54bps: increase on period-e
Slide 17: Drivers of Change Under CECL
Drivers of Change Under CECL ● CECL replaces the incurred loss methodology with a life of loan estimate concept and was adopted as of 1/1/20 ● Economic factors, representing changes to future economic assumptions, drove majority of 1Q20 provision increase, as there were only $7mm of NCOs in the quar
Slide 18: Loan Loss Reserve
Loan Loss Reserve Key Observations Relative Reserve Comparison ● Commercial loans comprise ~75% of total average loans Reserves / Loans o 42% considered investment-grade equivalent as of 3/31/20 (%) 1.60% o ~20% of commercial loans are loans to mortgage companies (LMC), which carry minimal credit ri
Slide 19: Overview of Economic Assumptions: Baseline and Downside
Overview of Economic Assumptions ● Most heavily weighted scenario for overall ● Some weighting of this scenario in overall quantitative quantitative CECL models used for economic factors CECL models used in economic factors ● Considers COVID-19 pandemic impacts, including: ● Main scenario used for a
Slide 20: Current vs Stress Test Economic Environment
Current vs Stress Test Economic Environment ● Portfolios modeled primarily across three Moody’s scenarios ● Loan loss reserve in 1Q20 represents 74% of 2019 stress test losses over 9 quarters in severely adverse scenario, compared to peers1 at 40% Real GDP ($T) Unemployment Rate 3-month Treasury Yie
Slide 21: Stress Testing
Stress Testing FHN Has the Ability to Manage through Severely Adverse Economic Conditions ● FHN’s diversified portfolio mix resulted in Key Ratios lower losses 2019 FHN Stress Test Results Aggregate 2019 Peer Results 2.6% ● Total loss rates at 2.1% vs peers at 5.7% 2.4% ● Ability to manage capital t
Slide 22: Credit Portfolio Characteristics
CREDIT PORTFOLIO CHARACTERISTICS 22
Slide 23: 10-Year Balance Sheet Evolution Yields Lower Risk Model
10-Year Balance Sheet Evolution Yields Lower Risk Model ● Strong underwriting across loan portfolios Positive Commercial Credit Grade Migration ● Commercial loan portfolio shifting to higher ($ are Total Ending Balance) $27B 3% quality, with 42% of commercial loans PD 1-5 qualifying as investment gr
Slide 24: Asset Quality
Asset Quality ● Solid asset quality demonstrated by historically low Net Charge Offs/Average Loans annualized net charge-offs NCOs $ NCO %¹ (Right Axis) 0.40% ● Decreasing loan to deposit ratio driven by strong $9 $9 deposit growth outpacing solid loan growth 0.30% $7 o Average deposit CAGR: 11% sin
Slide 25: Commercial Loans by Industry
Commercial Loans by Industry Commercially Oriented Loan Portfolio Reflects Broad Mix of Categories % of ($ in millions) 1Q20 Balances Balance Loans to Mortgage Companies $5,754 21% ● 90% government guaranteed ● Finance & Insurance primarily includes finance companies, Finance & Insurance $2,695 10%
Slide 26: Industry: Focus Portfolios
Industry: Focus Portfolios Healthcare 4% Physicans & Health Practitioner Offices 20% 36% Health & Medical Centers $1.6B ~5% of total Hospitals loans Residential Facilities 27% Other 12% Healthcare includes $900mm healthcare line of business and other healthcare-related loans in C&I portfolio Energy
Slide 27: Industry: Focus Portfolios
Industry: Focus Portfolios Hospitality 26% Hotels — Average commitment size $14mm $0.6B — Over 90% flagged hotels — Average equity 40% ~2% of total loans Other 74% Other includes casinos and other traveler accommodations Restaurants 36% Limited Service Restaurants $1.3B — Average commitment size ~$2
Slide 28: Industry: Loans to Mortgage Companies
Industry: Loans to Mortgage Companies High Quality Portfolio Demonstrates Growth in 1Q20 ● FHN’s balance sheet capacity, knowledge, and expertise have led to increased market share while supporting the economy by funding credit lines ● Loans to mortgage companies (LMC) at $5.7B, up $1.3B from 4Q19;
Slide 29: Key Takeaways
KEY TAKEAWAYS PS 29
Slide 30: Merger of Equals with IBERIABANK on Track
Merger of Equals with IBERIABANK on Track ● Strengthens position in high growth, attractive markets Strategically ● Diversifies revenue and business mix Compelling ● Expands product capabilities ● Ability for greater investment in technology and digital capabilities for Enhanced Scale efficiency and
Slide 31: Key Takeaways
Key Takeaways ● Successful execution of strategic priorities and continued utilization of balance sheet and capital to support customers ● Strong liquidity, capital, reserves, and PPNR generation ● Diversified business with disciplined credit risk management o Loan portfolios across broad areas and
Slide 32: Appendix
APPENDIX PS 32
Slide 33: Balanced Board & Combined Executive Leadership Team
Balanced Board & Combined Executive Leadership Team Industry Expertise, Common Cultures & Experience Integrating Large Transactions Executive Leadership Team Board of Directors Daryl Byrd Bryan Jordan Executive Chief Executive Chairman Officer Executive Lead Chairman Director Terry Akins Tammy LoCas
Slide 34: IBERIABANK Merger & Truist Branch Acquisition
IBERIABANK Merger & Truist Branch Acquisition IBERIABANK MOE ● Establish and Execute Communication Plans ● Complete Regulatory and Shareholder Related Filings o Announced transformational MOE with IBERIABANK on o Merger approved by TN Dept. of Financial Institutions November 4, 2019 o Fed Reserve Bo
Slide 35: Net Interest Income and Margin Trends
Net Interest Income and Margin Trends ● NII and NIM lower due to decline in accretion from 4Q19 NII and NIM Linked-Quarter Change Drivers elevated levels; NII impacted by fewer days in the quarter NII NIM ($ in millions) ● Total loan accretion of $9mm in 1Q20 vs $14mm in 4Q19 4Q19 - Reported $311 3.
Slide 36: Fixed Income Delivers Strong Countercyclical Growth
Fixed Income Delivers Strong Countercyclical Growth ● Fixed income product average daily revenue (ADR) at $1.3mm o Increase of $200k or 19% LQ, up $500k or 73% YOY ● Pre-tax income at $26mm, up $15mm or 141% YOY ● Growth across multiple trading desks and across customer base ● Extensive distribution
Slide 37: Disciplined Expense Management
Disciplined Expense Management ● Good expense discipline throughout 1Q20 ● 1Q20 expense includes higher variable compensation from increased revenue in Fixed Income and higher expense related to reserve for unfunded commitments Total Noninterest Expense 4Q19-1Q20 Total NIOE ($ in millions) $327 $300
Slide 38: NII Sensitivity
NII Sensitivity ● Floating rate assets re-price at 100% beta. Loan 1Q20 Loan Composition: Fixed vs Floating portfolio comprised of 71% floating adjustable Float rate loans 71% LIBOR 88% ● Liabilities re-price at a slower pace; strong DDA mix Fixed Fixed Prime Floating 29% vs. 12% Composition with em
Slide 39: Deposit Composition Reflects Stable Funding Mix
Deposit Composition Reflects Stable Funding Mix ● Total avg. deposits represent ~86% of total funding Total Average Deposits ● Stable and cost effective funding mix in Regional Avg. Balance Weighted Avg. Rate Paid Banking with 55% DDA and interest checking deposits Avg. Fed Funds $32B $32B $32B $33B
Slide 40: Insured Network Deposits
Insured Network Deposits ● Included in market-indexed deposits and represent deposits from brokerage customers; balances flow into banks for FDIC insurance ● Contracts through various brokerage firms ● Significant inflow in March as brokerage customers exited equity markets into cash positions ● Sim
Slide 41: Securities Portfolio Overview
Securities Portfolio Overview ● Period end balances of $4.6B Portfolio Composition ● Primarily government-guaranteed, liquid MBS and CMO fixed rate securities US Gov’t Agencies ● High-quality municipal bond portfolio (AA & AAA rated) (Primarily MBS/CMO) ● Low effective duration of 1.3 years1 $4.6B 2
Slide 42: Outstanding Long-Term Debt and Preferred Stock
Outstanding Long-Term Debt and Preferred Stock Credit Ratings1 Principal Issuance Coupon Rate Callable Date Maturity Outstanding2 Moody's Fitch First Horizon Bank Subordinated Debt 4/27/20 5.75% 2/1/30 5/1/30 $450mm Baa3 BBB- Preferred Stock 3/23/05 3 Month LIBOR + 85bps3 4/10/10 Perpetual $300mm Ba
Slide 43: 1Q20 Credit Quality Summary by Portfolio
1Q20 Credit Quality Summary by Portfolio Regional Banking Corporate6 Non-Strategic FHNC Commercial Consumer Consumer Commercial Consumer ($ in millions) CRE Other2 Subtotal Other3 Total (C&I & Other) Real Estate1 Real Estate1 (C&I & Other) Real Estate1 Period-end Loans $21,798 $4,608 $5,717 $468 $32
Slide 44: Regional Bank Average Loans
Regional Bank Average Loans Regional Bank Average Commercial Loans Consumer & Small Business Specialty Loans to Mortgage Co's Areas 4% 16% Commercial Real Estate 9% Asset-Based Lending Business Banking 39% Healthcare 14% Private Client Franchise Finance 48% 1Q20 Corporate Retail Energy 39% 10% Small
Slide 45: Consumer Portfolio & Non-Strategic Overview
Consumer Portfolio & Non-Strategic Overview HELOC Draw vs Repayment Balance Home Equity Portfolio In Draw In Repayment 68% $1.0B $0.3B 5% 6% 7% 6% 8% 0-12 13-24 25-36 37-48 49-60 >60 Months Left in Draw Period Non-Strategic Consumer Real Estate Mortgage Repurchase Reserve $540mm 1Q19 2Q191 3Q19 4Q19
Slide 46: Notable Items-2019 & 2020
Notable Items-2019 & 2020 Pre-Tax Pre-Tax 2019 Amount 2020 Amount Restructuring ($12.2mm) 1Q Acquisition Expense ($5.8mm) Acquisition Expense ($5.7mm) Restructuring ($18.7mm) Rebranding ($9.1mm) 2Q Acquisition Expense ($8.6mm) Legal Resolution Expense Reversal $8.3mm Rebranding ($3.1mm) Acquisition
Slide 47: Reconciliation to GAAP Financials
Reconciliation to GAAP Financials Slides in this presentation use Non-GAAP information of adjusted noninterest expense, adjusted net income available to common, adjusted earnings per share, and after-tax pre-provision net revenue. That information is not presented according to generally accepted acc
First Horizon National — Q1 2020 Earnings Presentation on 6ix