New York, August 02, 2012 -- Moody's Investors Service today downgraded the long-term ratings
of First Horizon National Corporation (FHN) and its subsidiaries.
FHN's senior unsecured debt rating was downgraded to Baa2 from Baa1.
The lead bank, First Tennessee Bank, had its standalone bank
financial strength rating (BFSR)/baseline credit assessment (BCA) downgraded
to C-/baa1 from C/a3, and its long-term deposit rating
downgraded to Baa1 from A3. The bank's Prime-2 short-term
rating was affirmed. Following the rating action, the outlook
on all ratings is negative, with the exception of the standalone
BFSR. The C- standalone BFSR has a stable outlook because
it can map to either a baa1 or baa2 BCA. Therefore, a lowering
of the BCA to baa2 would not result in a change to the C- standalone
BFSR. This action concludes Moody's review for downgrade
that began on March 30, 2012.
RATINGS RATIONALE
Moody's said the one-notch downgrade of FHN's long-term
ratings reflects the bank's weaker asset quality and profitability
performance relative to peers. FHN's asset quality metrics,
though improving, continue to be negatively affected by its large
non-strategic loan portfolio, while the bank's profitability
metrics have been weighed down in recent quarters by elevated mortgage
repurchase provisions.
Regarding asset quality, Moody's noted that FHN's non-performing
assets (NPAs, including loans past due 90 days or more and all restructured
loans) represented a high 5.1% of loans plus other real
estate owned at June 30, 2012. Although FHN's NPAs
are declining, close to 50% of its problem loans come from
the bank's non-strategic portfolio. This run-off
portfolio includes FHN's national consumer lending and trust preferred
portfolios, and still represents about 25% of total loans.
Moody's believes that the size of this portfolio will continue to
be a hurdle to significant improvement in FHN's asset quality metrics
in the near term.
Regarding profitability, FHN's mortgage repurchase provision
spiked significantly in Q2 2012 to $250 million, which management
believes will cover all future losses for repurchase requests from the
government-sponsored enterprises (GSEs). Nonetheless,
as a result of the charge, FHN will likely report a net loss for
the full year and the bank remains exposed to further GSE or private label
security investor mortgage put-back risk.
Moody's added that FHN's repurchase provisions were already
relatively high, averaging $43 million between Q1 2011 and
Q1 2012, reflecting the bank's outsized exposure to the mortgage
business leading up to the crisis. Furthermore, even without
mortgage repurchase provisions, FHN's core profitability remains
weaker than peers because of a relatively low net interest margin and
weak operating efficiency. Moody's expects that low interest
rates, which will continue to pressure the margin, and ongoing
credit-related costs to run down the non-strategic portfolio
will be headwinds to significant improvement in core profitability.
With respect to the negative outlook, Moody's remains concerned
that future mortgage repurchase provisions could increase if the GSEs
and/or private investors become even more aggressive in their repurchase
requests. However, FHN's good capital position somewhat
mitigates this risk.
The principal methodology used in this rating was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
FHN is headquartered in Memphis, Tennessee and reported total assets
of $25 billion at June 30, 2012.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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Joseph B Pucella
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
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Releasing Office:
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Moody's downgrades First Horizon (senior to Baa2), outlook negative
