First Horizon Reports Strong First Quarter After Capital Bank Merger

Friday, April 13, 2018

First Horizon demonstrated strong first quarter 2018 results, driven by year-over-year loan and deposit growth, higher revenues, improvement in the efficiency ratio and good asset quality trends, said officials on Friday. Reported earnings per share were $0.27, up 17 percent from first quarter 2017; on an adjusted basis1, earnings per share were $0.34. First Horizon enhanced profitability with an increase in return on tangible common equity and return on assets.

The Capital Bank merger, which resulted in a $40 billion organization with more than 300 branches throughout the Southeast, is contributing to overall earnings. The merger is on track with cost savings and revenue synergies, and the systems conversion is scheduled for later this quarter. 

Chattanooga Market President Jeff Jackson said, “This is an exciting time for First Tennessee and we continue to be so grateful for the trust our customers have placed in us.  We know that loyalty is earned thru each and every transaction and interaction with our customers. Because of this, our employees are the most important key to our success in Chattanooga.”  

“I am pleased with our strong first quarter results and am optimistic about our outlook for the remainder of the year,” said Bryan Jordan, First Horizon’s chairman and CEO. “First Tennessee and Capital Bank employees continue to deliver exceptional differentiated services and solutions to our customers and our preparations remain on track for the integration of Capital Bank in the second quarter.” 

First Quarter 2018 Financial Highlights (all comparisons vs first quarter 2017)

Diluted EPS/                     ROTCE1/                       ROA/      
Adjusted Diluted EPS1     Adjusted ROTCE1         Adjusted ROA1       
$0.27 / $0.34                    14.1% / 17.4%                0.95% / 1.2%

Regional Banking Highlights 

The First Tennessee/Capital Bank franchise showed solid fundamentals, driven by the Capital Bank merger in November, better interest rate spreads, and organic loan and deposit growth
Pre-tax income up 66 percent
Revenue up 50 percent from increased net interest income and higher fee income
Net interest income up 55 percent and fee income up 34 percent
Efficiency ratio improved to 54 percent from 59 percent
Average loans up 50 percent and average deposits up 38 percent
Other Highlights 
Net interest margin expanded to 3.43 percent from 2.92 percent
Asset Quality remains stable
Total average assets of $40 billion
1These are non-GAAP numbers that are reconciled to reported GAAP numbers in the non-GAAP table that follows

CONSOLIDATED SUMMARY RESULTS  
Quarterly, Unaudited

1Q18 Changes vs
(Dollars in thousands, except per share data) 1Q18 4Q17 1Q17 4Q17 1Q17
Income Statement Highlights (a)
Net interest income $ 301,173 $ 242,088 $ 189,708 24 % 59 %
Noninterest income 135,931 133,053 116,895 2 % 16 %
Securities gains/(losses), net 86 137 44 (37 ) % 95 %
Total revenue 437,190 375,278 306,647 16 % 43 %
Noninterest expense 313,265 346,670 222,205 (10 ) % 41 %
Provision/(provision credit) for loan losses (1,000 ) 3,000 (1,000 ) NM *
Income before income taxes 124,925 25,608 85,442 NM 46 %
Provision for income taxes 29,931 73,989 27,054 (60 ) % 11 %
Net income/(loss) 94,994 (48,381 ) 58,388 NM 63 %
Net income attributable to noncontrolling interest 2,820 2,910 2,820 (3 ) % *
Net income/(loss) attributable to controlling interest 92,174 (51,291 ) 55,568 NM 66 %
Preferred stock dividends 1,550 1,550 1,550 * *
Net income/(loss) available to common shareholders $ 90,624 $ (52,841 ) $ 54,018 NM 68 %
Common Stock Data
EPS $ 0.28 $ (0.20 ) $ 0.23 NM 22 %
Basic shares (thousands) 326,489 265,169 233,076 23 % 40 %
Diluted EPS $ 0.27 $ (0.20 ) $ 0.23 NM 17 %
Diluted shares (thousands) 330,344 265,169 236,855 25 % 39 %
Period-end shares outstanding (thousands) 327,194 326,736 233,883 * 40 %
Cash dividends declared per share $ 0.12 $ 0.09 $ 0.09 33 % 33 %
Balance Sheet Highlights (Period-End)
Total loans, net of unearned income $ 27,249,793 $ 27,658,929 $ 19,090,074 (1 ) % 43 %
Total deposits 30,818,951 30,620,362 23,479,841 1 % 31 %
Total assets 40,463,195 41,423,388 29,618,600 (2 ) % 37 %
Total liabilities 35,890,667 36,842,900 26,878,140 (3 ) % 34 %
Total equity 4,572,528 4,580,488 2,740,460 * 67 %
Asset Quality Highlights
Allowance for loan losses $ 187,194 $ 189,555 $ 201,968 (1 ) % (7 ) %
Allowance / period-end loans 0.69 % 0.69 % 1.06 %
Net charge-offs/(recoveries) $ 1,361 $ 8,312 $ (900 ) (84 ) % NM
Net charge-offs (annualized) / average loans 0.02 % 0.15 % NM
Non-performing assets (NPA) $ 172,664 $ 177,156 $ 161,284 (3 ) % 7 %
NPA % (b) 0.60 % 0.61 % 0.80 %
Key Ratios & Other
Return on average assets ("ROA") (annualized) (c) 0.95 % (0.58 ) % 0.82 %
Return on average common equity ("ROE") (annualized) (d) 8.79 % (6.73 ) % 9.40 %
Return on average tangible common equity ("ROTCE") (annualized) (e) 14.06 % (8.78 ) % 10.33 %
Net interest margin (f) 3.43 % 3.27 % 2.92 %
Efficiency ratio (g) 71.67 % 92.41 % 72.47 %
Common equity tier 1 ratio ("CET1") (h) 8.98 % 8.88 % 10.20 %
Tier 1 ratio (h) 9.98 % 9.83 % 11.35 %
Market capitalization (millions) $ 6,161.1 $ 6,531.5 $ 4,326.8

Certain previously reported amounts have been reclassified to agree with current presentation.
NM - Not meaningful
* Amount is less than one percent.
(a)  1Q18 includes three months of activity related to the CBF acquisition compared to one month of activity in 4Q17.
(b)  NPAs related to the loan portfolio over period-end loans plus foreclosed real estate and other assets.
(c)  Calculated using net income.
(d)  Calculated using net income available to common shareholders.
(e)  This non-GAAP measure is reconciled to ROE in the non-GAAP to GAAP reconciliation.
(f)   Net interest margin is computed using net interest income adjusted to a fully taxable equivalent ('FTE") basis assuming a statutory federal income tax rate of 21 percent and, where applicable, state income taxes.
(g)   Noninterest expense divided by total revenue excluding securities gains/(losses).
(h)  Current quarter is an estimate.

Use of Non-GAAP Measures

Several financial measures in this release are non-GAAP, meaning they are not presented in accordance with generally accepted accounting principles (GAAP) in the U.S. The non-GAAP items presented in this release are adjusted earnings per share ("EPS"), return on tangible common equity ("ROTCE"), adjusted ROTCE, and adjusted return on average assets ("ROA"). These profitability measures are reported to First Horizon’s management and directors through various internal reports. First Horizon’s management believes these measures are relevant to understanding the financial results of First Horizon and its business segments. Non-GAAP measures are not formally defined by GAAP or codified in the federal banking regulations, and other entities may use calculation methods that differ from those used by First Horizon. First Horizon has reconciled each of these measures to a comparable GAAP measure below:

FHN NON-GAAP TO GAAP RECONCILIATION  
Quarterly, Unaudited

(Dollars and shares in thousands, except per share data) 1Q18 4Q17 1Q17
Average Tangible Common Equity (Non-GAAP)
Average total equity (GAAP) $ 4,573,706 $ 3,506,165 $ 2,722,668
Less: Average noncontrolling interest (a) 295,431 295,431 295,431
Less: Average preferred stock (a) 95,624 95,624 95,624
(A) Total average common equity 4,182,651 3,115,110 2,331,613
Less: Average intangible assets (GAAP) (b) 1,568,029 726,958 211,757
(B) Average tangible common equity (Non-GAAP) $ 2,614,622 $ 2,388,152 $ 2,119,856
Annualized Net Income Available to Common Shareholders
(C) Net income available to common shareholders (annualized ) (GAAP) $ 367,531 $ (209,641 ) $ 219,073
Ratios
(C)/(A) Return on average common equity ("ROE") (GAAP) 8.79 % (6.73 ) % 9.40 %
(C)/(B) Return on average tangible common equity ("ROTCE") (Non-GAAP) 14.06 % (8.78 ) % 10.33 %
Adjusted Net Income (Non-GAAP)
(D) Net income (GAAP) $ 94,994
Less: After-tax impact of notable items (GAAP) (c) (21,472 )
(E) Adjusted net income (Non-GAAP) 116,466
(F) Annualized net income (GAAP) 385,253
(G) Annualized adjusted net income (Non-GAAP) 472,334
Adjusted Net Income Available to Common Shareholders (Non-GAAP)
(H) Net income available to common shareholders (GAAP) $ 90,624
Less: After-tax impact of notable items (GAAP) (c) (21,472 )
(I) Adjusted net income available to common shareholders (Non-GAAP) 112,096
(J) Annualized adjusted net income available to common shareholders (Non-GAAP) 454,612
Average Assets (GAAP)
(K) Average assets $ 40,350,724
Diluted Shares
(L) Diluted shares 330,344
Adjusted Ratios & EPS Impacts
(C)/(B) ROTCE (Non-GAAP) 14.06 %
(J)/(B) Adjusted ROTCE (Non-GAAP) 17.39 %
(F)/(K) Return on average assets ("ROA") (GAAP) 0.95 %
(G)/(K) Adjusted ROA (GAAP) 1.17 %
(H)/(L) Diluted earnings per share ("EPS") (GAAP) $ 0.27
(I)/(L) Adjusted diluted EPS (Non-GAAP) $ 0.34

(a) Included in Total equity on the Consolidated Balance Sheet.
(b) Includes goodwill and other intangible assets, net of amortization.
(c) Includes $31.4 million of pre-tax acquisition-related expenses primarily associated with the Capital Bank Financial Corp. ("CBF") acquisition and a $3.3 million gain on the sale of a building adjusted using an incremental tax rate of approximately 24 percent.




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