First Horizon National Earnings Call Nuggets: Tier 1 Under Basel III and Loan Demand
Tier 1 Under Basel III
Steven Alexopoulos – JPMorgan: I wanted to start on capital. Looking at the slide deck, the slide on the impact of Tier 1 under Basel III that you provided last quarter wasn’t in there this quarter. I’m just wondering are you rethinking the 250 basis point hit to Tier 1 common under Basel III or the timing of recapturing that.
Bryan Jordan – Chairman, President and CEO: Steve, this is Bryan and I’ll get BJ get into the specifics. We really didn’t see a need to put it back in there core – in there this quarter. Nothing has changed the comment period ended and I guess it’s under review in advisement with the regulators how it will be impacted. There’s nothing about our estimates that would have changed during that period of time or our expectations. I think as we said last quarter and we’d reiterate, we will react accordingly to whatever set of rules come out around capital in Basel III and we’ll manage our balance sheet in accordance with that. So, nothing has really changed about our expectations. There’s no new information and so that forecast is largely unchanged from the time we talked about it in the third quarter results.
Steven Alexopoulos – JPMorgan: On the security portfolio yields which have come down around 15 basis points a quarter through 2012, can you help us think about the pace we should expect in 2013 and maybe how much of that’s accelerated premium amortization impacting the decline versus just reinvesting at lower rates?
William C. Losch III – EVP and CFO: Hi, Steve, it’s BJ. I’ll start with the premium amortization question. We have very modest amounts of that, so that’s not an issue for us at all I think we have something like $24 million of premium amortization so it’s a very modest amount. You should expect something probably similar to what you’ve seen. We are very heavily agency and MBS in our securities portfolio and obviously, the reinvestment rates there are very challenging. So, you should expect to see similar declines in 2013.
Steven Alexopoulos – JPMorgan: Then following from that, BJ in terms of your margin outlook, you expect pressure sort of 4 or 5 basis points a quarter rather than 2 to 3, how are you thinking about that?
William C. Losch III – EVP and CFO: Yeah, that’s possible. That would fall in my modest category. Based on our rate look and we generally use Blue Chip consensus rate outlook, we expect that our margin will continue to come down modestly because of the dynamics in our book. We have predominantly a floating rate balance sheet. So, we’ve taken a lot of the pain, if you will already over the last couple of years as assets have re-priced downward. So, our bankers are doing a really good job as much as we can in the competitive environment to defend yields on commercial loans and get well priced deals. But with the securities portfolio and other dynamics, it is difficult. We still believe that we have some modest opportunity to bring down deposit rates, not as much as we’ve had in the past couple of years, but some and we’ll continue to do everything that we can, but a lot of it largely relates to what the spread is going to be between short rates and long rates.
John Pancari – Evercore Partners: On the loan front, I wanted to see if you can give us a little more color on what you are seeing in terms of loan demand and what’s driving the growth in the C&I book? Then separately also on the loan front, can you just talk a little bit about the expected pace of the runoff in coming quarters of the non-strategic book and how you view that changing?
Bryan Jordan – Chairman, President and CEO: This is Bryan. I’ll start and then I’ll let Susan sort of pick up at a detail level on what we’re seeing. We actually saw a pretty good demand in the fourth quarter. Now, we actually were a little pleasantly surprised particularly in December, it looks like we had a less than insignificant amount of loan, the activity is driven by proposed tax law changes. So we have pretty good demand. The pipeline, because we had such good closings in the fourth quarter, is down a little bit in the first quarter of this year or going into the first quarter of this year. It seasonally does that every year, so we’re not terribly surprised at that. From an economic perspective, we think the economy continues to move forward at a modest pace. We think our calling efforts have been very successful and are paying off very well with the kinds of opportunities that we’re getting. As BJ just said a couple of minutes ago, our bankers have done a fantastic job in competing in a difficult environment trying to maintain attractive spreads and attractive structures. So I feel good about that, but it is a slow economy. With respect to the wind down of the non-strategic portfolio, I don’t see anything indifferent there. I think the CPR on the home equity was about 19% in the fourth quarter. It’s been running between 15% and 20%, so I would expect that that portfolio will continue to run off in the 15% to 20% range in 2013. I guess one of the mathematical realities of it is it’s a smaller percentage of our loan portfolio today than it was a year ago, so it will have less impact on our loan growth percentages. As I pointed out earlier, we produced about 2% loan growth even with that in 2012. So I feel good about that momentum. Susan any comments you want to make about the marketplace?
Susan Springfield – EVP, Commercial Banking and Chief Credit Officer: Our bankers are saying that they feel like 2013 will feel much like 2012 in terms of competition, in terms of opportunity. We do a great job of bringing business, new opportunities with existing customers and also bringing in new prospects. So, the outlook really is that we’ll do everything we can to bring in that new business, but we do realize that the competitive environment will continue to be a strong one.
John Pancari – Evercore Partners: Then my follow-up on the capital deployment front. Can you just, Bryan, talk a little bit about your thoughts around buybacks? I know you are going through the process now in terms of determining what you’re going to do, but can you give us a little color on how you think about the pace of buybacks for ’13 and then any of the deployment opportunity?
Bryan Jordan – Chairman, President and CEO: Yes. As we pointed out reasonably, I guess consistently for a while, we feel good about our strong capital position. Our balance sheet is in a $25 billion plus or minus area. We’re generating strong returns. We think we’re putting the mortgage repurchase behind us with the actions we took in the second quarter. So, we still feel good about our ability to return capital to shareholders. We will and have worked with our regulators in the past and we’ll work with them in the future to manage through that. Buyback is one important element of it, the dividend is another element. We think dependent on where you are in terms of pricing at any one point in time stock price and at any one time that changes the various element of buyback versus the dividend. Over the course of the last 15 months, we bought back about $175 million worth of stock. I think the average price was $8.50 something and that’s very attractive to us. We think it’s an attractive price, and we’ll continue to buy our stock when we have the opportunity. I think it’s appropriate for us in 2013 to evaluate the mix of dividend and buyback. So, it’s the long way of saying, we ought to look at the rate of dividend that we pay and I would expect that we would have an eye towards increasing that dividend over time. So, we’ll continue to make sure we’re smart with the way we manage this capital. We’ll continue to do it in the context of prudent balance sheet management, prudent risk management, taking all of our various risks and opportunities in the context. But we think there’s a fair amount of capital that we can return to shareholders in 2013, 2014.
A Closer Look: First Horizon National Earnings Cheat Sheet>>