First Horizon National Earnings Call Nuggets: NIM Outlook and Mortgage Business Details

First Horizon National Corp (NYSE:FHN) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

NIM Outlook

Robert Placet – Deutsche Bank: This is Rob Placet from Matt’s team. Just first on your NIM outlook for the year. I was just wondering if you could help us think about the trajectory of NIM over the course of the year.

William C. Losch III – EVP and CFO: It is BJ. That’s 285 to 295 range. Any of the three quarters could be anywhere in that range. I would generally expect that it would come down modestly, but as you’ve seen there is volatility from what we are seeing in the marketplace in terms of both macro rate movements and what we are seeing from competitive pressure. So generally speaking I think each of the three quarters will be similar in that range.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Robert Placet – Deutsche Bank: I was just curious if you can kind of paint a scenario where you’d have kind of a flat NIM or even a higher NIM for the rest of the year, I mean obviously it’s going to be loan growth and rate driven, but just curious what your thoughts are in terms of achieving the high end of that range through rest of the year?

D. Bryan Jordan – Chairman, President and CEO: I think if you look at the slide that we put out that’s kind of (walked) forward if you will what we saw in the quarter, certainly I think loan fees come back after their seasonal declines. We do have incremental opportunity that was obviously getting smaller from lower deposit costs which can benefit us. If some of the key macro rates move such as one month LIBOR has been trending down. If that stays flat to going up, that’s incrementally helpful to us, the tenure in terms of our loans to mortgage company business in particular. If that continued to stay at lower levels or come down a bit more that can certainly help us. But we are staying fairly conservative on our outlook related to those, but those can certainly help us get towards the higher end…

Robert Placet – Deutsche Bank: Then as it relates to your mortgage warehouse portfolio. I was just curious could you just talk to the meaningful drop in balances this quarter, what specifically drove it, and kind of where you see balance is trending for the year and kind of how you think about that portfolio on a normalized basis over time?

William C. Losch III – EVP and CFO: I think our outlook for – again, I’ll reiterate. I think our outlook for that portfolio is roughly in line with where we’re at today. I think we ended the quarter at an average balance of $1.1 billion, and that’s going to move. I did mention that it was probably a larger than expected drop we had ended the year last year at $1.8 billion period-end, and we were probably in the $1 billion range or just under at period-end for this quarter, so it was probably larger than expected drop. Two primary reasons for that was again, the first quarter is seasonally soft in terms of mortgage originations, which is obviously where that business is going to ebb and flow. Second, the rate dynamics that we saw on the long-end related to refis was not as conducive, so both of those factors contributed to a larger than expected decline. I would point out though that if we look at year-over-year our loans to mortgage company balances are roughly the same as what they were in 1Q ’11. So, what we had seen throughout 2012 was significant strength and growth. It just came down a little bit faster than I would have been anticipated. That portfolio again, as I mentioned is very attractive from a profitability and return and risk perspective. It’s also one of our highest yielding commercial portfolios with yields in the 4.80 range. So I think that’s going to have a bit of a disproportionate impact that moves as much as it did this way or this quarter.


EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Mortgage Business Details

Steve Alexopoulos – JP Morgan: I just wanted to follow-up with a few questions on the mortgage business. In 1Q what was the split of purchase and refi?

William C. Losch III – EVP and CFO: I’d probably say it, Steve, it was in the 80-20 range refi versus purchase.

Steve Alexopoulos – JP Morgan: BJ, in the past I think your balances were somewhere between 400 million and 800 million in that ballpark. Do you have more capacity that you plan to maintain these volumes for? I am trying to get a sense if we go back to that range or for some reason we should stay above it?

William C. Losch III – EVP and CFO: I think, Steve, if my memory serves me right the lowest debt portfolios gotten in recent memory was 330, something like that. We would expect it to stay at these kind of levels over the rest of 2013. It is kind of hard to gauge where it goes beyond that. As you can see it can move quite a bit in any particular quarter, but there are couple of things that we’ve done in that business where we believe we’ve gained share such that over time we think the lows are not as low as what they would have historically been. I would see it more in the 500 million to 1 billion range would be more on the lower end as opposed to what we would have seen previously. But again our current expectations based on rate outlook and what our bankers say in that business, we think it is 1 billion to (1.2 billion) range the rest of the year.

Steve Alexopoulos – JP Morgan: But I guess, BJ, we need refi activities to stay very strong, right if you are getting 80% of this business from refi?

William C. Losch III – EVP and CFO: Yeah, that would be good assumption.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

D. Bryan Jordan – Chairman, President and CEO: That helps, Steve. This is Bryan. We think – and Susan can talk about the portfolio limit. As BJ reiterated, we work to broaden and deepen our relationship with our mortgage banking customers. We think we have, as BJ said, gained market share and we think that we’re working really hard to be the first line used and increase utilization. We think we will benefit incrementally if actual purchase money does pickup as the housing recovery builds. So, we are optimistic that we have gained share. It will be a bigger business, as we highlighted obvious this morning there is more volatility around that business, but we think we’ll get paid very well for the service that we provide there and we have good solid deep relationships and like the business…

Susan L. Springfield – EVP, Commercial Banking and Chief Credit Officer: This is Susan, Steve. As we reiterate what Bryan said, we have taken the opportunity with some of our larger and longer term clients to increase the lines that we offer to them in the mortgage warehouse business. It’s also, as both BJ and Bryan have added market share by adding some additional clients as well.

Steve Alexopoulos – JP Morgan: I just had one question on capital. It looks like you paid out just over 100% of net income in the quarter by the dividend and buybacks. Bryan, is that how we should be thinking about capital deployment going forward?

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

D. Bryan Jordan – Chairman, President and CEO: I think in the short-run, Steve, that’s probably a good way to think about it. If you look at the dynamics of our balance sheet with continued run-off in the non-strategic portfolios as we expect and you see fairly limited opportunities for loan growth in a slower growth economy. I would expect that we would anticipate to return a significant amount of capital to shareholders. We don’t think we need to build our capital ratios at this point and we are very comfortable using the combination of the dividend now nickel a share and the buyback $30 million this quarter, returning that capital to our shareholders in the near term.