First Horizon Corporation · NYSE:FHN
First Horizon — First Horizon National — Q1 2020 Earnings Presentation
39 slides from First Horizon's earnings presentation, Apr 21, 2020
Slide 1: First Quarter 2020 Earnings
First Horizon National Corporation First Quarter 2020 Earnings April 21, 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: 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 4: 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 5: 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, 1Q20 strong countercyclical business performance and excellent expense management Earnings ● Provision
Slide 6: IBERIABANK Merger & Truist Branch Acquisition
IBERIABANK Merger & Truist Branch Acquisition IBERIABANK MOE ● Establish and Execute Communication Plans ● Complete Regulatory and Initial Shareholder- Related Filings o Announced transformational MOE with IBERIABANK on o Completed S-4 in March November 4, 2019 o Merger approved by TN Dept. of Finan
Slide 7: Key Financial Highlights
KEY FINANCIAL HIGHLIGHTS Px
Slide 8: 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 9: 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 10: 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 11: Capital & Loan Loss Reserves
CAPITAL & LOAN LOSS RESERVES 11
Slide 12: 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 13: 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 $7mm of NCOs in the quar
Slide 14: Loan Loss Reserve
Loan Loss Reserve Key Observations Relative Reserve Comparison ● Commercial loans comprise ~75% of total average loans Reserves / Loans o 42% considered investment-grade equivalent as of 3/31/20 (%) 1.60% o ~20% of commercial loans are loans to mortgage companies (LMC), which carry minimal credit ri
Slide 15: Overview of Economic Assumptions
Overview of Economic Assumptions ● Most heavily weighted scenario for overall ● Some weighting of this scenario in overall quantitative quantitative CECL models used for economic factors CECL models used in economic factors ● Considers COVID-19 pandemic impacts, including: ● Main scenario used for a
Slide 16: Current vs Stress Test Economic Environment
Current vs Stress Test Economic Environment ● Portfolios modeled primarily across three Moody’s scenarios ● Loan loss reserve in 1Q20 represents 74% of 2019 stress test losses over 9 quarters in severely adverse scenario, compared to peers1 at 40% Real GDP ($T) Unemployment Rate 3-month Treasury Yie
Slide 17: 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 18: Credit Portfolio Characteristics
CREDIT PORTFOLIO CHARACTERISTICS 18
Slide 19: 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) $27B 3% quality, with 42% of commercial loans PD 1-5 qualifying as investment gr
Slide 20: Commercial Loans by Industry
Commercial Loans by Industry Commercially Oriented Loan Portfolio Reflects Broad Mix of Categories 1Q20 Average % of ($ in millions) Balance Balance Loans to Mortgage Companies $5,754 21% ● 90% government guaranteed ● Finance & Insurance primarily includes finance companies, Finance & Insurance $2,6
Slide 21: Industry: Focus Portfolios
Industry: Focus Portfolios Healthcare 4% Physicans & Health Practitioner Offices 20% 36% Health & Medical Centers $1.6B Hospitals Residential Facilities 27% Other 12% Healthcare includes $900mm healthcare line of business and other healthcare-related loans in C&I portfolio Energy 18% Reserve Based —
Slide 22: Industry: Focus Portfolios
Industry: Focus Portfolios Hospitality 26% Hotels — Average commitment size $14mm — Over 90% flagged hotels $0.6B — Average equity 40% Other 74% Other includes casinos and other traveler accommodations Restaurants 36% Limited Service Restaurants $1.3B — Average commitment size ~$20mm 64% Full-Servic
Slide 23: 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 $1.3B from 4Q19;
Slide 24: Key Takeaways
KEY TAKEAWAYS PS 24
Slide 25: Merger of Equals with IBERIABANK on Track
Merger of Equals with IBERIABANK on Track ● Strengthens position in high growth, attractive markets Strategically ● Diversifies revenue and business mix Compelling ● Expands product capabilities ● Ability for greater investment in technology and digital capabilities for Enhanced Scale efficiency and
Slide 26: Key Takeaways
Key Takeaways ● Successful execution of strategic priorities and continued utilization of balance sheet and capital to support customers ● Strong liquidity, capital, reserves, and PPNR generation ● Diversified business with disciplined credit risk management o Loan portfolios across broad areas and
Slide 27: Appendix
APPENDIX PS 27
Slide 28: Net Interest Income and Margin Trends
Net Interest Income and Margin Trends ● NII and NIM lower due to decline in accretion from 4Q19 NII and NIM Linked-Quarter Change Drivers elevated levels; NII impacted by fewer days in the quarter NII NIM ($ in millions) ● Total loan accretion of $9mm in 1Q20 vs $14mm in 4Q19 4Q19 - Reported $311 3.
Slide 29: 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 $15mm or 141% YOY ● Growth across multiple trading desks and across customer base ● Extensive distribution
Slide 30: Disciplined Expense Management
Disciplined Expense Management ● Good expense discipline throughout 1Q20 ● 1Q20 expense includes higher variable compensation from increased revenue in Fixed Income and higher expense related to reserve for unfunded commitments Total Noninterest Expense 4Q19-1Q20 Total NIOE ($ in millions) $327 $300
Slide 31: 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 $33B
Slide 32: Insured Network Deposits
Insured Network Deposits ● Included in market-indexed deposits and represent deposits from brokerage customers; balances flow into banks for FDIC insurance ● Contracts through various brokerage firms ● Significant inflow in March as brokerage customers exited equity markets into cash positions ● Sim
Slide 33: NII Sensitivity
NII Sensitivity ● Floating rate assets re-price at 100% beta. Loan 1Q20 Loan Composition: Fixed vs Floating portfolio comprised of 71% floating adjustable Float rate loans 71% LIBOR 88% ● Liabilities re-price at a slower pace; strong DDA mix Fixed Fixed Prime Floating 29% vs. 12% Composition with em
Slide 34: 1Q20 Credit Quality Summary by Portfolio
1Q20 Credit Quality Summary by Portfolio Regional Banking Corporate6 Non-Strategic FHNC Commercial Consumer Consumer Commercial Consumer ($ 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 35: 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 36: 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 37: Pre Provision Net Revenue
Stress Testing FHN Has the Ability to Manage through Severely Adverse Economic Conditions Stress Test1 based on 2019 DFAST Severe Scenario Fixed Income Countercyclical Contribution ● Severe global recession with heightened stress in $175 30% Pre Provision Net Revenue FI PPNR % of Total PPNR commerci
Slide 38: 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 39: 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
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