News Column

Fitch Affirms First Horizon at 'BBB-'/'F3' Following Peer Review; Outlook Stable

February 5, 2014

CHICAGO --(BUSINESS WIRE)-- Fitch Ratings affirms the ratings for First Horizon National Corp. (FHN) at 'BBB-'/'F3'. The rating Outlook remains Stable. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT The affirmation of the IDR reflects Fitch's view that FHN is solidly placed in the 'BBB-' rating category due to its strong franchise in the Southeast, its core business lines' abilities to generate reasonable capital and absorb potential litigation risks, and management's efforts to wind down the nonstrategic loan portfolio while minimizing losses. Fitch believes FHN's ratings are constrained to their current level over the long-term given legal overhang associated with the company's former legacy business strategy as well as its tepid consolidated earnings performance. Furthermore, Fitch believes that FHN's asset quality will continue to lag higher-rated peers given the sticky nature of its nonperforming assets. Capital remains adequate relative to similarly rated banks and above management's long-term capital targets. At 3Q'13, FHN had an estimated Basel III capital equity tier 1 (CET1) of between 9.7% and 9.8% compared to management's goal of between 8.0% and 9.0%. In order to build capital levels, management announced that it would be re-evaluating its share repurchase program. Fitch's expectation that FHN will be able to maintain capital at reasonable levels relative to its risk profile is incorporated in today's affirmation and maintenance of the Stable Outlook. FHN's core business lines have maintained adequate performance relative to similarly rated peers. The company's core business lines generate a ROA of between 80 and 100 bps any given quarter, in line with Fitch's expectations and at levels that generate reasonable capital. Fitch anticipates that core business lines will continue to be profitable but at depressed levels going forward given the sustained low, short-term rate environment and is embedded in FHN's current rating of 'BBB-'. Further, performance on a consolidated basis will continue to substantially lag higher rated peers due to the additional costs associated with the company's former legacy business strategy. Asset quality, while improving, continues to weigh on FHN's rating and overall risk profile. NPAs have been reduced to under 3.5% but will remain elevated given their nature. Fitch notes that accruing TDRs, which make up over 40% of the company's NPAs, primarily consist of stickier consumer-related restructured loans that will most likely weigh down asset quality metrics over the long-term. RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT Fitch believes FHN's ratings are reasonably situated at 'BBB-' given core business results and franchise strength. However, Fitch notes that FHN is still subject to elevated legal risk related to prior mortgage practices. Outside of loans sold to the GSEs, FHN is being investigated by the U.S. Department of Justice (DOJ) (on behalf of the Housing and Urban Development [HUD]) relating to the underwriting of FHA loans. Furthermore, FHN originated and securitized $27 billion of PLS between 2005 and 2008, and although the company has not received any repurchase requests to date, it is currently subject to five securitization-related lawsuits and three indemnification claims. The outcome and timing of these lawsuits, as well as any lawsuits FHN could be named apart of in the future, is presently unclear and thus not explicitly incorporated in FHN's ratings. Fitch will continue to monitor and assess FHN's legal risk. To the extent that the company continues to need to take outsized charges that result in material capital deterioration, negative rating action could be taken. Given continued expectations that core earnings will be in line with similarly rated peers, upward rating movement is unlikely over the near to mid-term. However, over the long-term, to the extent that FHN is able to maintain capital at adequate levels, reasonably manage legal risk and improve earnings performance, positive rating action could be taken. KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by FHN, and its subsidiaries are all notched down from FHN's VR of 'bbb-' in accordance with Fitch's assessment of each instrument's respective non-performance and relative Loss Severity risk profiles, which vary considerably. RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES FHN's subordinated debt and other hybrid capital ratings are is sensitive to changes in FHN's VR . Rating sensitivities for the VR are listed above. SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS First Tennessee Bank, NA is a wholly owned subsidiary of FHN. First Tennessee Bank, NA's ratings are aligned with FHN's reflecting Fitch's view that the bank subsidiary is core to the franchise. SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES First Tennessee Bank, NA's ratings are sensitive to changes to FHN's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR FHN's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed. KEY RATING SENSITIVITIES- SUPPORT RATING AND SUPPORT RATING FLOOR FHN's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Fitch Ratings reviewed FHN's ratings as part of the mid-tier regional bank review. The 19 banks in today's review include: Associated Banc-Corp (ASBC), BOK Financial Corp (BOKF), Cathay General Bancorp (CATY), City National Bancorp (CYN),Cullen/Frost Bankers, Inc (CFR), East West Bancorp, Inc. (EWBC), First Horizon National Corp (FHN), First National of Nebraska, Inc. (FNNI), First Niagara Financial Group, Inc. (FNFG), First Republic Bank (FRC), First Merit (FMER), Fulton Financial Corp (FULT), Hancock Holding Company (HBHC), People's United Financial, Inc. (PBCT), Synovus Financial Corp (SNV), TCF Financial Corp (TCB), UMB Financial Corporation (UMB), Webster Financial Corp (WBS), Wintrust (WTFC). Fitch affirms the following ratings: First Horizon National Corporation --Long-term IDR at 'BBB-'; Outlook Stable; --Viability at 'bbb-''; --Short-term IDR at 'F3'; --Senior at 'BBB-'; --Preferred stock at 'B'; --Support at '5'; --Support Floor at 'NF'. First Tennessee Bank, N.A. --Long-term IDR at 'BBB-'; Outlook Stable; --Viability at 'bbb-'; --Short-term IDR at 'F3'; --Long-term deposits at 'BBB'; --Short-term deposits at 'F3'; --Short-term debt at 'F3'; --Subordinated debt at 'BB+'; --Preferred stock at 'B'; --Support at '5'; --Support Floor at 'NF'. First Tennessee Capital II --Preferred stock at 'B+'. Additional information is available at ' www.fitchratings.com '. Applicable Criteria and Related Research : --'2014 Outlook: U.S. Banks' ( Nov. 21, 2013 ); --'U.S. Banks: Liquidity and Deposit Funding ( Aug. 08, 2013 ); --'U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)' ( June 18, 2013 ); --'U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?' ( July 11, 2013 ); --'Global Trading and Universal Banks - Periodic Review' ( Dec. 12, 2013 ); --'Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13' ( Jan. 15, 2013 ); --'Risk Radar Global - Q313' ( Sept. 05, 2013 ); --'Fitch Global Corporate Rating Activity - Third Quarter 2013' ( Dec. 5, 2013 ); --'U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain)' ( Jan. 27, 2014 ); --'Global Financial Institutions Rating Criteria' ( Jan. 31, 2014 ); --'Assessing and Rating Bank Subordinated and Hybrid Securities' ( Jan. 31, 2014 ). Applicable Criteria and Related Research : 2014 Outlook: U.S. Banks http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723989 U.S. Banks: Liquidity and Deposit Funding http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196 U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875 U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539 Global Trading and Universal Banks - Periodic Review http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726150 Fitch Fundamentals Index - U.S.; Index Trend Analysis 3Q13 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718948 Risk Radar Global - Q313 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717023 Fitch Global Corporate Rating Activity - Third-Quarter 2013 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720480 U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732295 Global Financial Institutions Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397 Assessing and Rating Bank Subordinated and Hybrid Securities Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=819712 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings, New York Media Relations Brian Bertsch , +1-212-908-0549 brian.bertsch@fitchratings.com or Primary Analyst Associate Director Bain K. Rumohr , CFA, +1-312-368-3153 or Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 or Secondary Analyst Senior Director Julie Solar , +1-312-368-5472 or Committee Chairperson Managing Director Christopher Wolfe , +1-212-908-0771 Source: Fitch Ratings


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