First Horizon National Corporation ((NYSE:FHN) is a Bank holding company and regional bank headquartered in Memphis, Tennessee, with 216 bank branch locations in the Southern United States including the states of Tennessee, Georgia, Mississippi and Texas. [1] The bank is heavily focused on the state of Tennessee, which accounts for 187 of its financial centers located in 17 counties and all metropolitan areas in the state. [2] Lately, First Horizon National has been downsizing some of its operations including the selling of its 10 branch locations in Texas during February 2008. [3] With this restructuring plan, FHN has refocused its operations back on its markets in Tennessee, especially seeking to expand its retail banking operations. As of June 30, 2008, FHN ranks second in Tennessee's deposit market (14.32% of deposits) after Regions Bank (15.52%). [4]

Company Overview

First Horizon is a regional bank, mortgage bank and financial service provider with more than 500 locations in 42 states and Hong Kong, comprising bank financial centers, mortgage offices, national construction offices, and FTN Financial offices.[5] The company provides financial services with its subsidiaries which are organized into four business segments: Retail/Commercial Banking, Mortgage Banking, Capital Markets and Corporate. Unlike the other three segments which directly cater to customers, the Corporate segment of First Horizon serves the corporation itself by providing internal support services.[6] In 2007, financial instability in the housing market and First Horizon's initiatives for restructuring took their toll on FHN and the bank reported a loss of $170.1 million, or $1.35 diluted loss per share as mortgages lost profitability and credit concerns decreased demand for loans in FHN's retail banking segment as well. [7] Provisions for loan losses grew sharply to $272.7 million to accommodate to worsening situations in home building and construction loans.

Annual Income Data (millions) 2007 2006 2005
Net Interest Income 940.6 996.9 984.0
Provision for Loan Losses 272.7 83.1 67.7
Non-Interest Income 859.9 1,166.9 1307.3
Non-Interest Expense 1,843.4 1,742.6 1,626.9
Net Income/(Loss) (170.1) 462.9 424.7

Business Segments

First Horizon National Corporation's Net Income By Business Segment 2007
First Horizon National Corporation's Net Income By Business Segment 2007[8]

FHN generates most of its business and income from its retail/commercial banking sector. It has been reducing the size of its mortgage banking segment which lost profitability with the mortgage market crisis through 2007 and into 2008.

Retail/Commercial Banking (71% of Revenue)[9]

The Retail/Commercial Banking Segment offers financial products and services such as traditional lending and deposit taking to retail and commercial customers. The retail/commercial bank also provides investments, insurance, financial planning, trust services and asset management, credit card, cash management, check clearing, and correspondent services. FHN primarily operates In 2007, pre-tax income for the segment was $208.4 million, a 52% decrease compared to $434.4 million in 2006.[10] This decline in profits in this division resulted from falling demand for consumer loans which followed the turmoil in the credit market in the latter half of 2007.[7]

Mortgage Banking (9% of Revenue)[11]

FHN's mortgage banking segment suffered from heavy losses due to the mortgage crisis in 2007. Both interest and non-interest income fell (18%, $16.9 million, 76%, $294.1 million) with the unfavorable market and the mortgage crisis during which demand for mortgages fell while mortgage default rates rose, eliminating FHN's margins.[12] This segment provides home mortgages to clients through First Horizon Home Loans, a division of First Tennessee Bank National Association (FTBNA), which operates offices in 41 states. [12] FHN's management has realized the decrease in profitability of this segment and has been striving to divest its capital allocated in it in order to shift funds over to more profitable operations.

Capital Markets (18% of Revenue)[13]

First Horizon National's Capital Markets business deals with a broad spectrum of financial services for the investment and banking communities through the integration of traditional capital markets securities activities, structured finance, equity research, investment banking, loan sales and portfolio advisory services.[12] This division generates revenue from fixed income businesses and fee-based businesses such as structured finance, equity research, investment banking, loan sales and portfolio advisory.Both pre-tax income and revenue from this segment declined in 2007 compared to 2006 (Pre-tax income decreased from $47.9 million in 2006 to $29.4 million in 2007. Total revenues were $330.6 million in 2007 compared to $380.0 million in 2006.). This decline resulted from a drop in demand for fee-based activities such as structured finance and research; revenue from fixed-income securities rose in 2007 as the Federal Reserve cut rates in the latter half of 2007. [14]

Corporate (2% of Revenue)[15]

FHN's Corporate segment is an exceptional division in the firm as it does not partake in any direct profitable operations. It is more of a restructuring, internal housekeeping segment which takes on the majority of costs generated by re-aligning strategies such as the sale of out-of-state branches of the retail/commercial banking segment and the right-sizing of the mortgage banking segment.As a result, Corporate has posted loses over the years. However, its operations makes First Horizon National more profitable in general by providing much-needed support functions. In 2007, Corporate Segment's losses have increased by $45.6 million as non-interest expenses rose sharply with the restructuring of FHN's mortgage banking business.[16]

Key Trends and Forces

Restructuring and Efficiency Initiatives

In 2007, FHN launched its Restructuring, Repositioning and Efficiency Initiatives: strategic adjustments made within the bank in order to boost profitability and to scale back in businesses that were generating losses. With this initiative, FHN sold off its bank branches in Texas, put its Georgia branches for sale, and is reducing the size of its mortgage business as well as its national real estate portfolio which become unprofitable after the credit crunch and with falling real estate prices. A total of $98.7 million in costs was incurred for such activities which are listed below.

  • Expense of $20.4 million associated with organizational and compensation changes for right sizing operating segments and consolidating functional areas.
  • Non-core business repositioning costs of $17.4 million, including costs associated with the exit of the collectible coin merchandising business and the transition of the non-prime mortgage origination business to a broker model.
  • Expense of $17.2 million related to other restructuring, repositioning, and efficiency initiatives, including facilities consolidation, procurement centralization, multi-sourcing and the divestiture of certain loan portfolios.
  • Costs of $24.3 million related to the divestiture of 34 full-service First Horizon Bank locations in Virginia, Maryland, Georgia, and Texas, including $13.9 million for the writedown of intangibles.
  • Expense of $11.3 million related to the restructuring of mortgage operations through office closures, associated sales force decreases, and the reduction of management and support staff and downsizing of national lending operations through the reduction of consumer and construction sales forces and decreasing management, support staff and back-office costs.
  • Expense of $17.4 million for asset impairments related to the discontinuance of technology projects.
  • Transaction costs of $6.4 million from sales of mortgage servicing rights. [17]


Regional Competition

Regions Bank(RF) holds the largest market share in bank deposits (15.52%) as of June 30, 2008 in Tennessee where most of First Horizon National's operations are centered. Operating in the South, Midwest and Texas, Regions Bank holds approximately $94.8 billion in total deposits. Other than retail banking, Regions also operates Investment Banking, Brokerage and Trust, and Insurance.[18] The former two segments (Investment Banking and Brokerage and Trust) also compete with FHN's business segments.

SunTrust Banks (STI) operates retail/commercial banking businesses as well as investment services and mortgage to customers in 7 states: Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia and Washington DC.[19]

National Competition

Bank of America (BAC) is the largest bank in the United States. Its branches in Tennessee compete with those of First Horizon National.


  1. FHN 2007 10-K pg. 2  
  2. FHN 2007 10-K pg. 2  
  3. FHN 2007 10-K pg. 2  
  4. Deposit Market Share in Tennessee. Retrieved on June 2008.
  5. FHN 2007 10-K pg. 1  
  6. FHN 2007 10-K pg. 1  
  7. 7.0 7.1 FHN 10-K Exhibit 13 2007.
  8. FHN 2007 10-K pg. 1  
  9. FHN 2007 10-K pg. 1  
  10. FHN 10-K Exhibit 13 2007.
  11. FHN 2007 10-K pg. 1  
  12. 12.0 12.1 12.2 FHN 10-K Exhibit 13 2007 6.
  13. FHN 2007 10-K pg. 1  
  14. FHN 10-K Exhibit 13 2007 7.
  15. FHN 2007 10-K pg. 1  
  16. FHN 10-K Exhibit 13 2007 8.
  17. FHN 10-K Exhibit 13 2007 8.
  18. Regions Bank.
  19. Suntrust Banks.
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