Earnings soar for FHN

First Tennessee’s parent sees strong loan growth

Fewer problem loans sent First Horizon National Corp.’s profits surging in 2011 despite the MidSouth’s sluggish economy.

First Horizon reported annual earnings on Friday of $131.2 million, equal to 50 cents per share of stock, compared to a 2010 loss of $57.8 million, or 25 cents per share.

Strong earnings were regarded as another stable sign after a long rocky patch for the big Memphis company, which controls First Tennessee Bank, the largest based in the state.

Rising profits reflected the bank’s internal reordering rather than gains in Tennessee’s $255 billion economy, which labors along with a 8.7 percent unemployment rate.

The company’s loan volume rose a healthy 6 percent in 2011, largely as First Tennessee edged customers away from rival banks, rather than because of a broad upturn in the economy, said William Losch, First Horizon chief financial officer.

“We generally think we’re taking share’’ from rivals, Losch said, adding that loan “demand is still low across all industries.’’

Loans on the bank’s books totaled $16.39 billion in the fourth quarter, down slightly from the $16.78 billion reported in the same 2010 quarter. Deposits rose to $16.21 billion in the quarter, compared to $15.2 billion the year before.

“Loans aren’t easy to get. Our teams are out there working on relationship development,’’ said Bruce Hopkins, head of the bank’s West Tennessee operation.

Last year, First Tennessee bankers made about 400,000 sales calls statewide on existing and potential customers, Losch said.

For the year, profits were aided by fewer bad loans. In the fourth quarter, the company charged off $75.2 million, compared to $100.1

million a year earlier. Each time a bank writes off a loan, it takes a nick in earnings.

First Horizon’s loan problems trace largely to the old national residential mortgage business. It sank with the U.S. housing market in 2007 and mired the company in bad loans.

First Horizon the next year sold its 230 retail and wholesale residential loan offices located throughout the nation to a subsidiary of Metlife Inc.

Since then, the Memphis company has tried to steadily shake off the bad loans that remained on its books.

In 2011’s fourth quarter, $522.1 million worth of nonperforming loans were reported by First Horizon, including $305 million in the old “nonstrategic” businesses such as mortgage lending. That’s down from $836.5 million a year earlier. The term refers to borrowers who are late on loan payments, or have stopped paying, but the loan has not been deemed no good and written off.

First Horizon’s pool of nonperforming loans is not considered overly large anymore. For every $100 in loans and assets, $2.57 were classified as nonperforming, while the average for all Tennessee - based banks was $3.81 per $100 last autumn.

The year just past also looks good because in 2010 First Horizon paid investors a $63.1 million preferred dividend payment. It reduced the profits available to owners of the common stock that year. Investors poured $660 million into the bank in 2008 to stabilize the company after the housing market crashed.

Fourth- quarter profits totaled $34.9 million, or 13 cents per share, on revenue of $360 million. In contrast, profits in the same quarter the prior year reached $14.46 million — representing a loss of 20 cents per share after the dividend was paid — on $387.4 million in revenue.

Wall Street expected slightly better fourth- quarter profits of 14 cents a share, according to an analyst poll conducted by news service Thomson Reuters.

Losch shrugged off the difference as a matter of tenths of one cent.

“Were pretty pleased with the quarter,” Losch said.

Separately, First Horizon’s board of directors Friday approved a regular quarterly cash dividend of 1 cent per share. It’s payable April 1 to those who owned shares on March 16. — Ted Evanoff: (901) 529-2292