First Horizon National Corporation Annual Report 2019 Dear Fellow Shareholders: the Past Year Has Been Transformative and Successful for First Horizon
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First Horizon National Corporation Annual Report 2019 Dear Fellow Shareholders: The past year has been transformative and successful for First Horizon. We remained focused on the execution of our strategic priorities. We continued to build our business from a position of strength as we enhanced the products and services we provided for our customers. Our strong performance was demonstrated by steady earnings growth, solid returns, balance sheet flexibility, significant operating leverage and improved profitability. In the midst of this positive activity, in October 2019, we unified our family of companies under the First Horizon name and renewed our brand promise, committing to meeting customers’ needs while adapting to the changing banking environment. We are excited to bring all our organizations together under the First Horizon name and look forward to the benefits a consistent brand will deliver. Importantly, our team achieved these remarkable results in a year in which we also announced the transformative merger of equals with IBERIABANK Corporation. Once completed, we will create a leading regional financial services company with significant scale at over $75 billion in assets, accelerate our growth and deliver lasting shareholder value. Following the close of the merger, First Horizon will have an expansive 11-state reach in high-growth, attractive markets across the combined footprint with the scale and earnings power to invest in advanced technologies and innovation to deliver a more extraordinary customer-focused experience. In addition to our merger with IBERIABANK, we announced the acquisition of 30 branches in North Carolina, Virginia, and Georgia, improving and extending our footprint into additional attractive and stable markets. Our progress solidifies our position as one of the leading financial services companies in the South, and we are soon to be one of the top 25 banks in the U.S. in deposits. The achievements of 2019 prove our continued power in delivering value for our shareholders, employees, customers and communities. In addition to significant operational and strategic milestones, we achieved financial success. Due to strong performance across the franchise, our 2019 financial results included higher returns, increased profitability, improved efficiency, balance sheet growth, and stable asset quality. • 2019 EPS/Adjusted EPS1 at $1.38/$1.66 (2018 EPS/Adjusted EPS1 was $1.65/$1.41 largely due to a pre-tax gain of $212.9 million from the sale of Visa stock) • 2019 ROCE/Adjusted ROCE1 at 9.60%/11.59% (2018 ROCE /Adjusted ROCE1 was 12.75%/10.90%) • 2019 ROTCE1/Adjusted ROTCE1 at 14.71%/17.60% (2018 ROTCE1/Adjusted ROTCE1 was 20.28%/17.65%) • 2019 ROA/Adjusted ROA1 at 1.08%/1.30% (2018 ROA/Adjusted ROA1 was 1.38%/1.19%) • 2019 Efficiency Ratio/Adjusted Efficiency Ratio1 at 66.07%/59.94% (2018 Efficiency Ratio/ Adjusted Efficiency Ratio1 was 70.63%/64.48%) 1 Adjusted EPS, Adjusted ROCE, ROTCE, Adjusted ROTCE, Adjusted ROA, and Adjusted Efficiency Ratio are non-GAAP figures and are reconciled in the table following this letter. • Balance Sheet Growth: • Total loans up 7% from 2018 to 2019 • Total deposits up 5% from 2018 to 2019 • Stable credit quality: • Net charge-off ratio of 0.09% 2019 Annual Report Our Growth Strategy Delivers Results. continuously reinvent and reinvest in ourselves. Our Our strategic priorities serve as our roadmap to deliver merger with IBERIABANK will position us to capitalize strong performance. In 2019, we achieved the financial on these changes and increase our customer base targets we announced at our 2018 Investor Day, with through greater scale, strategic investments in advanced higher returns, improved efficiency, profitable growth technologies and expanded product offerings. in key markets and specialty areas, and effective capital We are becoming more data-centric and agile as our deployment. customer interactions become more digital every day. Last year was the first full year of growing the business Our focus on customer experience – what we call our CX we acquired from Capital Bank. We optimized our transformation – is working. Earlier this year, we launched funding mix by increasing customer deposits by 6% year- our “customer labs,” and we use them to co-create over-year in key markets such as South Florida, Middle solutions with our customers. Tennessee and Texas. In 2019, we grew specialty lending Our customers asked for additional mobile banking by 31% over 2018, putting our deposit growth to work. capabilities, and we responded with an improved We remain committed to a prudent capital deployment consumer platform with a streamlined checking account strategy and continue to take steps to deliver value for product suite and the addition of peer-to-peer payment shareholders. In 2019, we deployed capital effectively, tools. This commitment to adapt and expand our abilities including repurchasing shares and distributing dividends, in response to customer feedback will deepen our generating a total payout ratio of 70%. relationships with customers and allow us to continue to exceed their needs and expectations. While we faced a challenging interest rate environment in 2019, our countercyclical businesses – such as fixed income trading and lending to mortgage companies Our Future Opportunities are Significant. As 2020 begins, we are excited about the opportunities – significantly offset the impact of declining rates. ahead, including organic growth and the expected benefits Specifically, the fixed income segment’s net income of our merger of equals with IBERIABANK, which include: grew from $9 million in 2018 to $52 million in 2019 as the business benefited from decreased interest rates and • Enhanced Scale to Drive Growth – The combined increased market volatility. Loans to mortgage companies company will be a significant player throughout grew 133% year-over-year due to higher home purchasing the Southern U.S., with $75+ billion in assets. and refinance activity, as well as market share growth. This combination increases our ability to invest in advanced technologies and innovation to strengthen The successful integration of Capital Bank helped the business and create a competitive advantage in a establish a solid foundation for our 2019 performance. We dynamic market environment. realized merger cost savings of $85 million, 30% greater than initially targeted, allowing our team to reinvest into • Complementary Market Presence – The strategic hires and technology upgrades. Our experience combination strengthens our competitive position with the Capital Bank merger prepares us for a successful in high-growth, demographically attractive Southern merger with IBERIABANK. markets that are among the top 25% fastest-growing economies in the country. Our post-merger bank Our Transformation and Innovation Continue branch footprint will be located in 15 of the top 20 to Create Value. Southern markets by population and in 11 states. Since our founding in 1864, we have embraced the • Diversified Business Mix – The combined company need to evolve to serve our customers with an emphasis will have a well-diversified revenue mix, with earnings on innovation, growth and customer-obsessed service. streams from unique lending capabilities and distinct The Capital Bank merger expanded our geographical fee income businesses across a broader customer footprint and provided us with a tremendous opportunity base. The combined organization will offer a more to drive growth and create value. And, we have comprehensive suite of products and services converted our subsidiary bank from a national bank for commercial, consumer and small-business into a Tennessee state-chartered bank to better align customers, who will benefit from our larger balance with our strategic priorities. sheet capacity. During the past few years, shifts in customer banking • Significant EPS and Earnings Accretion – The preferences and technological innovations have transaction is projected to deliver approximately 16% transformed our industry. Change in our industry is EPS accretion to First Horizon by year-end 2021. occurring at an unprecedented rate, compelling us to First Horizon National Corporation • Substantial Cost Synergies – The transaction is Our Steadfast Commitment to Communities and expected to deliver approximately $170 million in pre-tax Employees is Making a Difference. cost synergies, primarily driven by annual run-rate cost At the core of all our efforts are the communities we savings such as redundancies in overhead, occupancy serve, our employees and customers. We remain operations and computer services. committed to making their lives better and helping them • Peer-Leading Profitability – The combined company prosper. We continue to strengthen our efforts to be a will be well positioned to achieve peer-leading company that is Here for Good. profitability and operating metrics. I have often said that we never lose sight of why we are • Industry-Leading Operating Metrics – The franchise here or what we must do to make a difference as a good is expected to deliver top-tier operating and return corporate citizen, and that commitment remains strong. metrics with cost savings on a fully phased-in basis, Corporate social responsibility is ingrained in our DNA, including: and providing better opportunities for our stakeholders has been one of our guiding principles since the • Return on Average Tangible Common Equity of approximately 18%, company was founded. • Return on Average Assets of approximately 1.4%,